Closed loop with linear encoders but still backlash?

You need to look at the 7i85 manual (google for 7i85man) and then allocate the 7i96 pins to match the 7i85's expectations.
(Probably)
The 7i85 is just a passive break-out board really.

To change a plain step/dir 7I96 configuration to one using encoder feedback
is fairly simple with minor hal file edits, just change the position feedback
source from the stepgen to the encoder (one statement per axis).
Of course the PID tuning will be very different.