Does the encoder supply a TTL (0-5V) signal? The card itself should be able to count edges from a source with at less than 250 micro amps, typically 100micro amps is enough. Check out the specs on page 6. If you hook up your encoder to terminals 37 (PFI 8) and 3 (PFI 9) and run test pannels from Measurement & Automation Explorer (MAX) on the individual channels, can you count edges from there? How are you currently trying to count edges and what programming environment are you in?
If there wasn't enough current supplied, then the voltage would sag and depending on how far it would not be TTL compliant. If this was the case then the edges would not be counted.
Hope this helps, let us know if it doesn't count edges in MAX.
Where are you connecting the ground signal of the encoder? It should be on a digital ground. Sorry about the incorrect page, the table I'm reffering to is the Electrical characteristics on page 8. When you say the encoder can only source .5ma, do you mean .5ma per line (A & B) or total?