Unfortunately Mach3 won't work with an encoder unless you have an external motion controller (Smooth Stepper, CSMIO, etc) If you're using the parallel port, it will only work with a single pulse/rev device, usually opto sensor & slotted disc. I use a CNC4PC C3. Cheap & works well.
Threading with Mach3 has been challenging for me because my spindle drive wasn't powerful & steady enough for cutting threads in steel over 16mm dia. Had to build a 1:4 reduction belt drive to get it to work.