The LCDs work in either 4-bit or 8-bit mode. As for PIC vs. Atmel, I have been using the Atmel line for quite some time now; I switched because at that time there was no good free C compiler for the PICs (many years ago). This could be done with either.
As for the rotrary encoder, I'm not sure how much I would like to be spinning and pressing the knob to select one of 256 or 512 values even if you do it videogame style of select a digit/press to go the next. I'll add a rotary encoder as an alternate to the keypad; once I have the board done, I can try both out and see which works better. Costwise, it's about the same - $3.60 for the encoder or 20 cents a button from Digikey.