I think you are meaning an optical switch but just in case I thought I better mention an encoder is no use to you with the parallel port as it is too slow to see the Index pulse from an encoder. If you have a SmoothStepper then an encoder is fine as long as it has the Index pulse, in the future the SmoothStepper will be capabale of syncing with a full encoder.
Having said that I think you are meaning and optical switch similar to Optek OPB916B, if that is the case then all you need to do is connect it to a spare input pin on your port and then tell Mach which pin it is you have chosen for the Index. Its as easy as that
Well you will also need to take a 5v and 0v feed from your breakout and you will need a 220ohm resistor as well.
Hood