Dougan my man, once again you are correct...windowed mode is what has to be done. However, the strange thing is that I have noticed this full-screen/ windowed mode problem with light gun games in Daphne Singe as well. When running in full screen, the crosshair floats only around the edge, but works well in Windowed mode. Anyway, back to Mednafen---Here is my followup after playing with this for the past several days:
OK...Here is what I have done: I had a suspicion that running in full screen was a problem, but If I was somehow able to run it in an enlarged windowed mode, that it would work with the lightgun without the cursor being chased to the edge of the screen. I first tried manually making changes to the config by changing the resolution values, but the window size never changed no matter what resolution values I tried. The only thing that would happen was that the actual playable screen changed size (got smaller), and the "dark" area around the playable screen got thicker if I activated full screen mode via ALT+Enter. The Crosshair still would not stay in the playable area when the lightgun was pointed at the screen...which was weird because the playable screen was even smaller than the default size of the Windowed mode playable screen. I also tried changing the scaling, but evindently, I must have changed them in the wrong area of the config (more on this later!)
I then tried changing the windowed size in DxWnd. Long story short, no matter what I did, I could not get the DxWnd program to "hook" Mednafen, and I could never kill the process because the program would report no active processes even though I was successful launching Mednafen-HOTD within DxWnd. Too bad I could not find a good tutorial to deal with games that are ROMs to be launched via emulators. I believe that DxWnd would work, so if anyone has a tutorial in launching Roms that themselves are not the executable, I would really appreciate seeing it!
Finally, I tried the latest MedAdvCFG (v0.3.3). This was a very helpful program to make changes and test them immediately. After making sure that Full Screen and FS-Stretch was disabled, I set the resolution to 1920X1080 and the scaling factor to 6.36. Now, I have full screen X-axis, but a little bit long on the Y axis for my monitor. The GOOD NEWS is that the lightgun works perfectly well in regards to the crosshairs staying in the playing screen.
It does not disappear to the edges as it was doing in full screen (non windowed) mode. In fact, If I was to enable full screen via ALT+Enter, the crosshair immediately disappears to the edge of the screen. If I revert back to the scaled up, fullscreen windowed mode, the crosshair returns to normal function with the light gun. It has bought me to the conclusion that there is some bug in the full-screen mode so that does not play well with my system, but full-screen windowed mode works fine. For now, I will just use the scaled windowed version until I get further insight from the pros on what seems to be the bug.
I have since gone into the config file and manually changed the Y-scaling to 4.5. The 6.36/4.5 values for X/Y scaling in windowed mode is perfect for my monitor. Now, I need to figure out what is going on with the problem where 1 player shooting uses up both players ammunition in 2 player mode!
EDIT: I have posted a second video to You Tube demonstrating my results in full-screen windowed mode: