Hi Mark,
If the machine moves to the wrong place and doesn't disable with a following error then the encoder's Position must be incorrect (assuming a reasonably small Max Following Error setting).
You might use the Step Response Screen at a speed that fails and plot the result. That may provide some clues.
You might measure the encoder A+ A- B+ B- signals at Kanalog to make sure they are all switching to valid voltage levels and that none of the 4 are floating.