Ok Mach itself is Open Loop.
Servos however require closed loop.
If your servo drives are step/dir then the loop is closed in the drive, yours however are either Velocity or Torque mode so the position loop has to be closed and with Mach that means either something like the YAPSC (low end solution) or in a controller such as the CSMIO/IP-A or DSPMC etc (High end solution)
In your system because you have Velocity or Torque mode drives then the encoder needs to go back to the control, often however the drives themselves need a speed reference and that, in your case would be from the motors encoder. So encoders go from motor to drive then normally the drive will have Encoder pass through connections so that you can also feed the control with the encoder signals.
So to summarize you need to close the velocity loop in your drives but the position loop needs to be closed at the control, that is why you can not use a simple step/direction to analogue board as there is no way to close the position loop.
Your cheapest option is YAPSC your best option is one of the controllers I mentioned, anything else is wasting your time as you will end up getting nowhere.
I do not know where to get the YAPSC, I saw you tried to contact the guy that designed them, he will be the only source as far as I know.
Hood