Originally Posted by
haastec
I have disconnected the encoder cable countless times just as you have described and have never fried it; but never say never. That said however, I have heard of the encoder getting damaged when replacing the pulley on the encoder shaft. If the pulley was stuck onto the encoder shaft as they sometimes are, it is possible to damage the encoder internals when removing the old pulley which sounds like what may have happened here.
I would take a close look at the encoder and make sure it spins freely and smoothly. Double check the plug and wire connectors to make sure something is not loose. There is not much for serviceable parts inside the encoder, but if you think you will be replacing it, then there will be no harm done to take a peek inside if you care to do so. Unless the encoder pulleys/belts are slipping, I would suspect a bad encoder at this point based on the information you have provided. Not what you want to hear I am sure.
Good luck!