I have a trackball that works good and is detected and works inside MAME.
Good. This means that mouse is enabled because optical devices like trackballs and spinners are showing up in MAME.

1. Does it work in Windows?
How do I test this? Would the mouse move back and forth or something?
Yes, the default axis for a spinner is usually X-axis.
Moving the spinner right/left should move the Windows cursor right/left.
2. I have gone into both .ini file locations and ensured I enabled mouse and disabled Light Guns.
I have played with this a few times to try and get it working. I had enabled "Multimouse".
You don't have to disable light guns. I included that to show that "0" means disabled in mame.ini.
With multi-mouse enabled, inputs from each optical device encoder will be identified and handled as a separate mouse by MAME.
For example, your trackball encoder may show up as "Mouse 1" and the spinner encoder may show up as "Mouse 2".
If a game input is mapped to the trackball ("Mouse 1"), it will not accept inputs from the spinner. ("Mouse 2")
If you leave multi-mouse enabled, you will need to:
- Map the in-game controls for each spinner/trackball game to the desired device
i.e. Centipede controls need to be "Mouse 1" (trackball) but Tempest controls need to be "Mouse 2" (spinner)
- Leave the devices plugged in so you (hopefully) don't run into problems with Windows changing device numbers
i.e. Changing the spinner to "Mouse 1" and the trackball to "Mouse 2" (see ControllerRemap)
Scott