this is pretty weird that it works fine on one pc and not the other. are you positive you dont have an autohotkey script or something like that still running on that PC? this might be more than you are willing to try, but what about booting your arcade cab pc off of a live linux cd? you could then bring up a text editor and see if it responds in there, which would eliminate any software issues on your mame pc.
could it be a loose connection at that switch? or even a switch going bad? perhaps in moving it to the other pc, it moved into the right position and worked it's way loose when you moved it back.....i know it is a long shot. what if you open it up and pull the wires off of that switch and just touch them together...does it work then?
also, did you look closely at the wiring inside the x-arcade? make sure all of those wire harnesses are fully connected at the pcb. also check the wires at the sliding switch...i had one of those wires come loose one time and it caused some weird problems with my xarcade.