The PowerFlex 70 drive won't accept a commutation encoder over Thernet I/P. Actually, it can't act as an Ethernet I/O 'scanner' so it can't accept implicit messages from arbitrary devices.
I don't think Ethernet I/P as a protocol is capable of motor feedback. You may be able to make it work for commutation but not for speed control. [Peter Nachtwey[/b] would be able to tell you if the protocol had the theoretical bandwidth or not. This assumes you made a direct link between the drive and the encoder. If you go through a switch you are completely done.
I think an SSI encoder will allow for closed loop control. EnDat and Hyperface are also option but I think these have a separate SIN/COS channel set for speed control and commutation purposes.
Ethernet I/P encoders would generally be used for very low bandwidth positioning or general machine status indication. Anywhere you can use an absolute encoder directly into a plc you can use the Ethernet I/P equivalent. However, from what I have seen so far, the benefits of an Ethernet I/P encoder don't offset the added cost.
Keith