"Is there another reason this is not suitable?"
Yes, the Hostmot2 encoder counter firmware in "counter mode"
is an up down counter, which is not the same as a 1X quadrature counter.
A 1X quadrature counter counts
up on the rising edge of A
down on the falling edge of A
when B is high
The hostmot 2 counter always counts on the rising edge of A (ignoring the falling edge),
counting up when B is high and down when B is low
The reason this does not make a good 1X quadrature encoder counter
is easy to imagine if you think of teasing the dial on a MPG at the A edge
Say B is high, now every time A falls and rises the counter counts up even though
the dial has not moved from the edge of A
The counter mode was made for counting single sensors and frequency counting
There is a workaround for this on the 7I76,7I77,and 7I69 with the latest firmware,
these all have 2 channel (A,B only no index) 1x encoder counters (1x is default) built-in
one of their sserial "modes" (inputs 0 through 3 on the 7I77 are used for 2 encoders for example)
the 7I76 and 7I77 encoder modes also set the input threshold to 2.5V on those pins