I also had reliability issues with VIRTINDEX. Can't remember the exact issue, its been too long. Switching to a real index mark solved the issue.
I used a slot sensor and a disk attached to an opto 22 high speed input. You can also use the index pulse from an encoder but you need a transistor to drive the opto input. The encoder won't do it. You can buy one ready to go from Camsoft or i can give you the details to build your own.