It seems they've modified the way MAME handles 8way joysticks in 4 way games.
So if you accidentally hit 'right' then 'up', it will only register the 'up' movement. I could be misunderstanding what it's trying to achievem but personally I would have preferred it to ignore the second command (i.e. up), but
It doesn't allow 2 directions to be triggered at once. (no diagonals)
If you transition from 'right' to 'up', it will ignore 'right' as soon as 'up' is triggered.
An instant transition with no overlap or gap is what people try to accomplish with dedicated 4 way joysticks and diamond restrictors.
This allows you to get closer to that if using an 8-way.
In some of the old games, the character will hang for a second when both directions are triggered.
Mario getting stuck at the top of ladders or pacman missing turns are examples. (in burgertime it's more of a timing issue than a joystick issue)
This makes these games more playable with an 8-way stick.
Still not as ideal as a dedicated 4-way, but probably good enough for most casual players.
EDIT: At least I think that's what they're going for. I thought it had been this way for some time. I know nothing of software either.