Finished my 4/8 way switching circuit and for the sake of answering this question, I set one side to register the corner when it was pressed exactly in the corner of an 8-way restrictor. The other side was set to register nothing when pressed into exact corner. If moved at all, they'd both register a primary direction.
I tested using Burgertime, Donkey Kong, & Pacman.
While on a ladder in Burgertime, if you press left or right at any point other than the exact top or bottom of the ladder, your guy is going to get hung up regardless of what type of joystick is being used.
It's very subjective and I could tell very little difference between the two.
In the end, I think a very, very short overlap worked slightly better than a very, very short gap.
But it's still very YMMV. I wish it would have been more cut and dry.