I see that one can make a fast running, and quite accurate CNC using servos and Linear Encoders (much like some printers). Anyone ever used these? or possibly know where to find cheap parts to make it work. I can only assume that I would need something like a PIC controller to use one of these, which is fine, I'm most likely going to need one anyways if I went with steppers.

You don't need a linear encoder for this application. The servo should have a rotary encoder already, if it doesn't you can add it.

Well the only reason I was thinking about linear encoders is then I dont need to worry about back-lash, or having to factor in rotary position vs linear position, etc. I figured a strip with 300 CPI should render me accuracy around <.002 (ok i'll be more realistic, more like <.005)

Backlash can't be taken out by means of a linear encoder...the backlash would show up as "hunting" or "singing" in servos, and oblate holes with steppers. Real old-fashioned-mechanical "backlash" would allow the screw to overshoot the stripe on the linear strip encoder; it can't be stopped for slop! Strip encoders are lame too!

Let's try to get to what you want...how much accuracy do you need?

Well right now I have parts on order to make a dirt cheap CNC. I'll be happy if the first version could do <.040 accuracy. As I have a need for better accuracy, I'll upgrade parts to better the design. I'm going to end up using steppers, or possible encoded servos (thats if I can find some cheap enough). I found some discount steppers that are rated for 260oz/in for around $40 (just need to find the page again) so I might just run with those first. I figured that if I were to run at 28 threads per inch (all thread for now, then upgrade to acme or ball screw later), and I would want about 3-5 inch per second of velocity, I would need a motor that can do around 5000-8400RPM which a stepper would never be able to do. I know ball screws and acme threads usually have thread counts around 4-16 per inch, so i could use a slower motor.

Servos just look like a better option. They turn much faster, can get almost the same accuracy, and they have MUCH higher torque than the same size stepper. I just never messed around with one, so I'm not sure what they require as far as control circuits, power, etc. Back to the research!

260's are pretty powerful motors, and a good choice for a mid-sized machine. They can haul-ass too, depending on the need. Motor sizing is relative; but I'm sure you only need a NEMA17 for your Z if using 260/23 on the X or Y...this can save major $.

Leadscrews are entirely affordable, try roton.com. A much better choice over all-thread. Consider that you save money by spending a little more up front, and not needing to throw a bunch of equipment away later.