It might be because the rubber seal functions if the shaft on the encoder is indicated into center. Maybe it was an engineering problem compounded by a machine assembly quality issue. The rubber seal on the encoder shaft would not seal beyond a certain amount of coaxial alignment error of the shaft to the mounting position. The C axis encoder is a style designed to tolerate some error of alignment in assembly, but I noticed that regarding the seal.
Regarding your floating encoder- man I wish I had your luck. It would have saved me some money. If they were submersible, I would be $4600 heavier in the wallet right now, and that's a lot of hookers and blow.