This is my single knob version of a etch a scketch. The PIC controlling the Rotary Encoder is a 18F4620 but smaller pics like 18F1320 can be used. and 16F pics also.
The windows program was developed in C#(C Sharp) and it connects to the PIC via USB to UART connection aka FT232RL IC.
Take a look at the video below:
[youtube=http://www.youtube.com/watch?v=M5QzUG565A4]