There was a time when I was very interested in this idea, and wondered why nobody had engineered it yet. I even put together some plans of how I thought it would work.
Then I discovered the T-stick Plus, which provides me with 4-way, 8-way, and diagonal movement, all without having to open the control panel. I didn't believe it until I tried it (although many people had assured me that it was true), but the T-stick Plus in 8-way mode makes a great Q*Bert joystick. I've compared it to the real thing, and it feels very similar. There are no wrong moves or getting stuck like their was with the restrictor plate solution. T-stick Plus is definitely the best solution so far.
That having been said, I'm always a fan of having options. So if you come up with a different solution, it will certainly be something I'll take a look at (meaning I'll buy one and play around with it). The more solutions I have available to me, the more designs I can consider. And I can certainly imagine instances where a 4-way rotatable joystick might be my choice over the T-stick.
-Jeff "etumor"
Edit: I just read what 1-Up has to say about the T-stick, and I wanted to add that I agree when he says "I wish it was on a better joystick." The short throw and stiff feel of the T-stick are very problematic. I ended up hacking mine to make it work the way I wanted. I used Happ microswitches on it and did the trick where you stretch out the spring -- only then did it meet with my expectations. These two things "loosened" up the feel of the joystick considerably. The throw is still very short -- so that all relates back to my comment that I'd love to see "other" solutions.