I know this is an old thread, but it was never resolved,
So I PM'd ROO5676 to see if he ever got it fixed, and he said no. I was having the same problem as well, and I am pretty sure I resolved it (at least on mine).
So I am just posting this, in hopes that if someone else out there is having similar issues then maybe this will help....
Roo is using an IPAC4, which I do not know much about, but I will tell about my setup, and perhaps things can snowball off that:
Attached is a picture of my control panel, and as you can see, I have 7 joysticks, and a sh*tload of buttons. So the encoder I went with is a Hagstrom KEUSB108, since there are a lot of inputs availbale, and of course no possible ghosting. I have mapped it several times, using keyboard only (including SHIFT + keys, bc I was running out of inputs). That could have been one problem in itself (using SHIFT).
I then realized that my encoder had a "JOYSTICK" tab, that you could map most of those inputs to (4) POV hats and 64 JS button assignments. (I do not know if the IPAC4 has the same feature). (Attached is picture of my Hagstrom KEUSB108 GUI screenshots)
So I remapped my main 4 joysticks to the 4 POV hats, and remapped most of my buttons to the JS buttons 1 - 32 (BTW the Mame sees those as 0 - 31) Also I have 33 - 64 JS buttons, but Mame doesn't see those for some reason.
So combined with that, whatever buttons were left over to assign, I adhered to HiTek's "Optimal Key Layout". (picture attached)
Lastly, When I set up the General Controls in the MAME Tab, ANYTHING that I would not be using I blanked out. (Things such as Analog Paddle , Player 1 button 16, and so on). I think this is important, because by default those functions are set up as what MAME determines are default keys on your keyboard. (So even though you reassigned it in your encoder, MAME, by default, sees it as the original key-press, and that may trigger one little stray movement during game-play.
I tested on Mortal Kombat (by myself) and interference is completely gone. I still have not tested a 4-player simultaneous game (Which will be the REAL test), so I will post my findings next time my buddies come over and we'll try Turtles in Time, Simpsons, NBA Jam, etc.
For now, if anyone is having the same issue, then I hope this helps narrow things down for you, and Roo, hopefully your IPAC4 lets you assign JS inputs. If not, then there has to be some plug-in that allows you to do so.