A discrete (binary-input 2q -ary output) communication channel with memory is introduced with the objective to judiciously capture both the statistical memory and the soft-decision information of time-correlated fading channels modulated via binary phase-shift keying and coherently demodulated with an output quantizer of resolution q. It is shown that the discrete channel can be explicitly described in terms of its binary input process and a 2q -ary noise process. It is also shown that the channel is symmetric and admits a simple expression for its capacity when its noise is stationary ergodic. The 2q -ary noise process is next modeled via a generalized version of the recently studied binary queue-based channel (2007) to produce a mathematically tractable stationary ergodic M'th order Markovian noise source with 2q + 2 parameters. Numerical results indicate that the capacity of the discrete channel with q = 2, 3 is substantially improved over the cases of perfect channel interleav...