I am using a 20 tooth pulley, a GT2 timing belt with a pitch of 2mm, and a 2000 count / rev encoder. I think this will give a resolution of .00078 inches.
If the maslow is moving at 30 inches per minute, this means the machine would encounter about 635 encoder interrupts per second, per encoder channel. Since there are four channels overall, this would mean that the arduino would see up to 2540 interrupts per second.