FYI: Some of you may already know this. I wanted to document this, so that others can benefit from this information. As, I could find nothing on the web about how to get this working right.
Here is a small arcade style trackball for your Raspberry Pi projects. It's a 2-1/4 inch ball with a very small mounting package. I'm not sure of the manufacturer, but it has an "H" on the faceplate. The trackball connects with a PS2 mouse connector. It took me three tries to find a USB adapter which works (I read somewhere that older PS2 protocol needs active electronics to adapt to USB). The USB adapter below (and probably similar ones) with the dual mouse/keyboard connector and little in-line electronics works on the Raspberry Pi great - and without any drivers. You can get these trackballs about anywhere. Mine has the red/green leds. You can control the color the leds with the included switch contact wires (on the second wire harness exiting the trackball package). I was able to merely connect one wire on the trackball to the Normally Open switch on my arcade fire button. Each time I press the fire button, the trackball changes from green to red. I connected another wire to the player 2 fire button. They are isolated from each other within the trackball. Now, pressing either fire button causes the led color change. I mounted the trackball to my metal control panel with the help of a 2-1/4 inch metal knockout punch and 2 inch long #10-40 bolts. Don't tighten the bolts too much or you will warp the trackball package and bind up the ball.
Funny. I also wanted to keep the cost down. The trackball was about $30, but the knockout punch was $100.