So I could pull a 9-pin serial jack out of an old PC and wire this into my KeyWiz as 'joystick 3' (or something), right? That's what it looks like to me, and that would be cool 
You probably COULD, but it will WORK just like a digital joystick if you do.
IIRC, there were only two games for the 2600 that actually used the trackball AS a trackball.
For the rest of them, it acted just like a joystick.
When you spun lightly, it moved for a little bit then stopped.
When you spun hard, it moved for a bit longer, then stopped.
Missle Command was especially frustrating because you couldn't get from one end to the other quickly.
You spun the trackball, and the cursor just kind of floated along.
Question: The page I found with this information indicates that pin 7 is: +5V, max. 50 mA
I read this as saying that I should not pump more than 50mA down this line.
You don't really PUMP voltage, it's just there, and is drawn by whatever device you hook up to it.
So, before I blow anything up
, I'm wondering "how many mA get pulled through a keyboard encoder that's hooked to a ps2 port, and will it be okay for me to hook pin 7 up to the +5v from my keyboard encoder?
I don't know.
I would GUESS you'd be OK; but, without seeing specs on your encoder and PS/2 port, it's only a guess.