New vs Used
Hi there, it depends on the type of transponder. I would not buy a used King KT76/78, 76A/78A, or Narco AT-50 or AT-150. unless you are sure they are not too old. Those units have been around for a long time and the chance of you getting one with a weakened cavity (tube) is pretty high. The 76C has a tube also, but it is a newer model. Replacing a cavity would cost almost as much as a used Xpdr! If you can get your hands on a garmin GTX-320 or a 327 you'd be OK, since they use solid state components instead of the cavity. Terra made a little transponder, but I think that the little push switches used to change the sqwack code are discontinued and really hard to come by if they break. I really have no experience with the experimental units, so maybe someone else could pitch in some info here.
Serial vs. Gray code: Gray code is the most popular and older system. It can be said that it is parallel code. It uses 10 wires to provide altitude to the transponder. It is limited to 100 ft increments. The gray code only encoders are cheaper than the ones that provide RS-232.
Most of the new generation of transponders can use either gray or serial. With serial iformation you only need a single shielded wire to provide the ealtitude. Depending on the encoder (ie: SSD120-30-RS232) they can provide altitude in 10 ft increments. The transponder will only transmit 100 ft increments, but some of them will display the altitude on their screen. If you are installing a GPS, RS232 makes for a simpler and better install.
I hope I didn't bore you to death. If you have any more questions, I'll check the posts here again.