Played around with this some more. With the "overclock" enabled, 32X appears to be working 100% with the Picodrive emulator.
I threw three different USB gamepads at this thing and all of them worked fine with both stock M2 and Retroarch. Not sure if this is a Hakchi thing or what. Hori PS4 wired gamepad, Xbox 360 wired gamepad, Playstation Classic wired gamepad - all of them worked fine. The hold down start for 5 seconds functionality is replaced with press the select button. The M2 emulator went right into 6 button mode with Mortal Kombat.