Magnetic Encoders - Tips and Tricks
Magnetic encoders for most intents and purposes are an excellent low cost alternative to traditional optical devices.  There are some concerns related to their repeatability, accuracy and jitter but if you are not on the bleeding edge of servo design, they should suit your purposes very well.

If you are looking to purchase an encoder off the shelf as an integrated product, I've used ones from Baumer before with great success (they are a little expensive).  Otherwise for an IC level solution, the most mainstream ones are from AMS (Austria Microsystems).  I know that the AMS devices are often used in automotive applications like accelerator position sensing, steering wheel position sensing, etc.  RLS (Rennishaw) is another IC vendor.

One thing to be careful of when using an IC solution is that the quality of the magnet matters so be sure to use one that is recommended by the manufacturer.  Also placement of this magnet is important, make sure that it is in a non-ferrous shaft like aluminum, Stainless Steel or plastic.

In general for servos, I wouldn't recommend closing a velocity loop on absolute position feedback but rather use quadrature signals.  You can close position loop by accumulating quadrature as well or use absolute position.  The systems that I worked on use absolute feedback only to perform the homing function at power on and then quadrature for everything else.