To keep the "knuckles" from being too clumsy, you could put the encoder wheel between the bearings in the knucke and inside the arm that moves relative to the knuckle axle goes the encoder fork. Don't forget to put in an extra fork and hole as an index mark! A mouse only give relative movement, but a digitizer arm needs not only know which direction and how far, but also where it started. Just drill a tiny hole in the indexer wheel and put in a fork to read the hole.