Yes... it would be as simple as building a cabinet, putting a TV (or a computer monitor if you use a DC VGA box) in, and plugging in some hacked pads.
1) You could connect the hacked start button to a coin door... but not sure why you would want to do this.
2) I can hack the D-pad & the analog stick. However, by hacking the analog stick, it makes it digital. With all the DC games I have, I have only found one that requires the use of the analog stick (Berserk)
3) Go 2 players... if you ever have more than 2, you can just plug in regular gamepads.
4) That will vary wildly depending on the controls you choose, etc.