I just took apart a spare one. The piece with the optical slots is metal and moves past a magnet - it's not neodymium in this one, and you can barely feel the scroll steps (but this trackball is very old and worn out, too). I can only see one optical scroll wheel sensor lens, so I'm not clear on how it detects scroll direction - maybe there are two offset detectors behind the same lens.

I thought about just using a standard mouse wheel sensor, but can't think of a good way to couple it to a big ring. Gears seem like they'd have an annoying amount of play, making it feel indirect.