1) Height, I have mine at 36" Works perfectly sitting on a barstool or standing, Has been played by People of height range 5Ft to 6ft 6 and all played comfortably sitting or standing. (Although they did want a little more shoulder room)
Keyboard tray is fine as the machine is going to be Multi purpose, I presume you will put a board on rails so you can slide it out to a comfortable location.
2) Controls, Xin-mo I also have one of these seems OK in all the standard emulators, Well those that play nicely with a standard stick and 6 buttons, So everything up to Snes/Genesis There does seem to be an incompatibility with Hyperspin though. I read yesterday that Gamepad encoders/Joysticks do not work at all (Not sure about this as I have them working) But the fix is to use Joy2Key. Along with this I know you cannot use 2 joystick/pad buttons at same time to exit screens in hyperspin (Chances are its related to joystick not working properly) This means If you are going for 6 button layout you will want to buy 2 extra Buttons (Well you only need 1 but you may as well make things even) These you can assign to start and Escape in hyperspin. I went with some 8mm momentary switches One red One Green. They cost about $2 You may be able to get round this with the use of Joy2Key though.
3) Plexi/lexan is not that expensive, If you can find a large picture frame that has plexi/lexan you can use this for the marquee area, It's what I did. Even if you don't have a marquee I would double the height of the marquee area. You could always leave it open for storage of game controllers and the like.
4) If you are confident with your woodworking/Finishing/Painting go with the Ply, Most melamine seems a little fragile to me, well for a full sized unit anyway. It would probably be OK with a nice sturdy frame to attach to, and It does have a lovely clean finish which will save you time and money on the finishing/painting.
5) No such thing as "over-thinking" when building your own arcade controls. It's when you don't think enough that you end up with problems
I would also recommend building some kind of bezel to hide the TV It makes a world of difference to the overall finish, You don't have to have glass in front of that but it does top it off nicely and you could always add it later.
1. Yes, the keyboard tray will be on a set of sliding rails that I kept from my old computer desk before I built my own. So it will tuck away nicely out of place.
I'll have to re-draw the whole configuration a few more times to get it just right, but like I've said, this was just a rough draft as a starting point. I'll see what I can do working with 36".
2. What other options do I have within a close price range? Other than the "Xin-mo"? I'll most likely already be using joy2key or other keymapping software, because I play a few games with a Game-Elements GGE909 controller, which I prefer a controller to arcade controls, but when having a machine configured to be played as an arcade machine, I might as well play my games there rather than my own computer.
3. Storage for controllers sounds like a nice idea. What are the common dimensions for the marquee "glass"? I've looked at local hardware stores for plexiglass and even for smaller pieces like 36x48 it's $32. I've never bought plexiglass though, so I don't know whether you can buy a custom size at homedepot/lowes/etc. But then again, I'm trying to be as low budget as possible, so I still may avoid this.
4. I am absolutely confident with it, and painting/finishing it is not a problem, I've been building and painting things for a while now, I just built new kitchen paneling out of pallet wood, and that was quite a battle with how rough it is, but in the end it was really no problem.
I was considering some sort of cover for the screen, and I know it will give a nicer overall finish, but again, money is tight, in the future I will most likely add it, because yes, being able to see the outer frame of the monitor is unappealing.
Thank you so much for your input, my scrabble brain pieces are starting to inch closer together based on everything you guys are feeding me. It's difficult to plan this out as a beginner, and on my own.
Nice start. The controls seem okay for your purpose. The control panel seems a bit high and maybe a just a bit too steep angle.
The monitor should be angled a bit (move the upper part to the back) as you look towards it from above and not straight from the front.
I would remove the bottom front part (below the control panel). It will make it easier to play standing up without constantly kicking the cabinet. The keyboard drawer might not be necessary but if you want to keep it you could limit its height a bit so it will not stand out so much.
Maybe increase the front plate above the speakers and add a marquee. It's not so expensive (some plexi glass and a light source) but gives your cabinet a much nicer look.
Car speakers will do just fine.
Some of the above comments are personal taste. Mine is based on my current build:

The control panel is only at a 10 degree angle, based on the sketch, which I took that "happy-medium" from other sketchup files that I measured the angle of their control panels. Is that really too steep?
I did have it angled back more originally, but then I thought that because a short kid would be using it mostly, that it may be better off being more "head-on", but I left it this way intentionally to see if it would actually be noticed. I want my sketch to be nit picked in every way possible so that in the end I build the best cabinet.
The bottom part, I configured this way intentionally, it leaves space underneath for feet to find their way to, and the angled section above it gives the kids a place to rest their feet while sitting, they usually sit in a chair in front of the living room tv and they lean their chair back so their feet can reach a shelf on the tv stand, I thought by doing it that way, I could avoid a potential chair tip on concrete (as it's going in a partially finished basement). -->
http://i58.tinypic.com/z0tmx.pngWhen you say increase the front plate, do you mean where the actual marquee would be?
That is a nice cabinet you have there, do you happen to have any of the build progress on it? I'd really love to see the way it all came together!
[edit] Just saw the link in your signature! I'll have a look over it!
As far as painting/finishing, I didn't plan on doing any fancy decals, or T-Molding, partially to save money, and as far as painting goes, the kids have wanted something "galaxy" themed since I started working on the basement, and I was hoping to give it a paint job to look something like this:
http://media-cache-ec0.pinimg.com/736x/57/b3/bc/57b3bc7238beaa197a4657e0a830362c.jpg - The reason I wanted to avoid T-Molding is because of two reasons, I don't know how much the T-Molding actually costs to cover something of this size, and also because I don't know what router bit to use, or how much it costs.
Again, thank you all for your input, it's helping bring clarity to my project! This is a great community here and I'm glad to be a part of it!