hmm its hard to try that because I only seem to get it when throwing fireballs and fast moving games that need combos... cant do those combos on a keybaord 
My connections are all done with solder... so im pretty sure they have solid connections. I mean I can run through and make sure everything is attached well...
So, you guys think it has to be a hardware issue not software then?
The best way to troubleshoot is to go into notepad, or any application which tests keyboards (like Ghostkey), and watch the output when you are doing the moves with the stick. If the output doesn't reflect what you are doing, then look to it being a joystick issue of some nature. Maybe a wonky switch, connection or wire. You can test with a wire connected to ground, by touching the input terminal with the stripped end. This will bypass the joystick and help you pinpoint where the issue might be.
Also, since you say the encoder is 10 years old, unless you purchased the Eco version, your Keywiz probably has a large socketed processor chip. It's possible that due to humidity, etc, that the contacts on the chip socket might have tarnished a tiny bit, and are not giving proper connections to the pins. Usually, re-seating the chip will take care of this. This is unlikely to be the cause, however, as in those cases, it's usually an "all or nothing" situation and not intermittent. Still might be worth a try.
Finally, try replacing the PS/2 cable, if you have one around. It could have become damaged and is interfering with communication. If this were the case, then it wouldn't just be the "UP" direction giving you grief, but it's still something to consider.
RandyT