Pong is one of the first computer games ever created. Pong game projects using potentiometers to control the paddles are quite common. Potentiometer is not expensive, easy to work with and thus is a great choice as an input device for Pong game projects.
We have a few of these interesting Rotary Encoders - Illuminated (Red/Green) purchased from Sparkfun lying around for quite a while. You may find this part at https://www.sparkfun.com/products/10596. Rotary Encoder is much more challenging to implement as an input device as compared to the humble potentiometer but just for experimentation, we built a Bi-color LED Matrix Pong Game with rotary encoder for game control.
http://cdn.instructables.com/FFB/U76W/I … MEDIUM.jpg
For those interested in this project, you may visit http://www.instructables.com/id/Arduino … Pong-Game/ for more detail.