Okay, I stand corrected.? I guess I have never worried about AVCC before. I always relied on the internal 1.2 volt reference for measuring analog voltages with ADC.?? I went back and read over the comments on AVCC and
AVCC1 so maybe I now understand things a bit better.? Is it necessary to have
both AVCC leads tied together or both filtered/bypassed to facilitate startup?
Problem with encoder - try to check voltage at pin AVCC of ATmega. It should be close to 5V. After "Unreliable microcontroller start-up" modification, I had only 4,6V on AVCC that caused bad decoding of buttons inputs (3 buttons + resistors make a different voltages on A/D input, software compares it to reference AVCC). Inductors 100uH has quite high resistance of 7 ohm that means voltage drop on ATmega pins.