linear encoder

I'm going to rebuild old cincinnati cnc milling machine. I think I
can use the existing servo motor and control them from mach1 (or 2)
via Rutex's servo drives. These drives require feedback from the
encoders. One way to get the feedback is to fit the encoders on the
motor's axle. I'm just thinking now, how would the linear encoders
work in such construction. If I want to get 0.01 mm accuracy, would
0.005 mm resolution be fine enough? Couple examples of the encoders.
http://www.elgo.de/e/produkte/laengenmesssystemeinhalte.php?
produkt=MIX%2FFMIX&id=1&z=4
http://www.sikoproducts.com/ml/t_mb100.html
I do not know either, will the linear encoder offer some advatages
compared to rotating one, considering the backlash issue.

Comments appreciated

Juha