We've only just started thinking about this. If we can buy a package that works (is the one in the picture a production thing or custom made?), we will use what's available.
Otherwise, we'll use a linear encoder and make something similar to your picture. We don't care if it's +/- 10 vdc or 0-20 vdc, or whatever. However, 0 vdc to 24 vdc is REALLY easy since every system we've ever done has this already.
Currently, we use two LPT ports for Mach3. We'll use the Smooth Stepper when it's ready. For this device, we'll use whatever you recommend that works.
Sure would be nice to be able to set the high, center, and bottom voltages in Mach. That would eliminate the need for a manual adjustment to get the height right. Actually, just the middle might work - with a choice of polarity for what raises or lowers the z-axis. That is, depending on the resistor and wiring, an increasing voltage might mean you are either too close or too far away. A simple check box could be used to set polarity.
Another possibility would be a variable for response speed if this is to be truly dynamic, or alternately a response distance. For example, if the sensor reads "too high", the plunge is 1/20" and recheck. That could prove easier by eliminating the possibility of "hunting" like a badly tuned servo.
BTW - forgot to ask if this could be used for twin heads - nothing's ever simple!!