rotary or linear encoders for servo system??

Im converting another mill and decided to go with servos this time.
Im aware that the use of rotary encoders will require the use of backlash compensation in the controller, in order to achieve positional accuracy...What I dont know is will this positional error justify the additional cost of purchasing linear encoders instead or the traditional rotary?
The rotary encoders variety goes up to about 1024 PPR...where as the linear variety goes to about 360 LPI(??)...
Does this mean that the rotary version can detect a smaller movement than the linear variety?

Can someone explain this to me, and what the advantages / disadvantages of each are??

Thanks

Cost justification depends on your application. For a highly accurate and repeatable system, use linear. If you only need to hold .0005" then use rotary. Linear systems are more accurate because they always give absolute table position instead of counting ballscrew rotations. Rotary encoders are fine for accuracy as long as all mechanics are tight. Error will increase as parts wear. Backlash/lead error compensation can not remove all errors, such as end play on thrust bearings. The linear device can give you some strange problems since the position loop and the servo velocity loop will fight each other if the mechanics between them become loose. The installation of linear scales can be touchy and you must watch the environment. A good choice for bad environments is the steel rod type with balls inside. You get all of the advantages of linear with easy installation, rugged units, and relatively low cost.
Good luck with your machine!