Yes, the drive portion of the head would have to be disassembled to install. There are only two parts that always turn at spindle speed;
The low speed bull gear,
and the quill power down feed worm gear. The spindle is directly driven by the internal spline on these two gears. There is nowhere that you can access the spindle spline.
The bull gear is pretty easy to access, but it has too many teeth to be sensed at greater than about 3200 RPM with a 5 KHz sensor.
The only really viable option is the quill feed gear. It does move up and down as the low/high range is selected, but it remains in a range that is accessible to the sensors. In the case of my mill, I am not using the quill feed hardware so it is pretty easy to access through the quill feed selector hole. It is possible to put the sensors in there with the quill feed selector in place. There is just enough room on the back side.
I have a spare head that I can use as a fixture to build the sensor bracket so I can build it without disabling my mill. A project I'll get to one of these days.
I'll post a thread when I do that build.
I will be using these 4mm prox sensors to form a two channel encoder by spacing them to sense the gear teeth with a 90° phase offset.
The bracket will be something like this. I built this one for Alloy's Shizuoka, but was able to use the bull gear in that case because it has about 1/2 the teeth of the BP style bull gear. (there is about 0.015 clearance between the sensor and the gear teeth)
And the outside view. It works very well through the entire speed range and also gives rotation direction information. I was nice of Shizuoka to provide a perfect mounting port for this install.