Help on translating 5V rotary signal output to interface with lathe's cnc controller!
First of all according to the documentation https://docs.rs-online.com/e002/0900766b8145581a.pdf if we talk about piece of equipment from below picture, it has built in isolation on LPT port (including your INPUT1 and INPUT2). So you should treat them as driving LED cathode (comparable to your 4N25 isolator). Isolators, except isolation, impose noise into the circuit - multiplying them is not a recommended practice.