If you are just reading the digital pin in LabVIEW, that won't work. The communication with the Arduino will be too slow to catch all of them. You would need to use an encoder library on the Arduino itself. You can do this by using LINX with a LINX custom command. The you would set up the encoder in the setup() function and then use the custom command to read the current value.
If you have issues implementing it in LINX, you can post on the LINX forum for support.
FYI, LIFA has been deprecated for a few years now. It was replaces by LINX a few years ago.
