The problem is with your rotary encoder.
You can search the BBS and the FAQ for replacement strategies, but unless you are *very*good* with a soldering iron I suggest you farm it out to whomever is near you.
I sent mine to Stu at Eutronix (linked above) and had several things done at once (rotary encoder included).
I highly recommend him, but there are a couple others around that also do excellent work.