At start decoder count is reset. Micro starts rotating motor at 5RPM completes a rotation Rotation completion is detected by said proximity switch. After rotation completion the decoder count is read displayed on hyperterminal screen along with shaft frequency. And then frequency is increased by 1 and one rotation is completed and decoder count is displayed this process continues till 150RPM speed and then test completes.

A valid test method, but what happens when you stop and start within a revolution. in your original post you stated HCTL2032 gives misleading results if I start and stop the motor several times

Encoders work beautifully without any fancy soft or hardware as long as you do not start and stop.

Is your description of your test incomplete or is your test?

Erik