Without seeing the inside of one, it's hard to tell exactly how to hack one.
If they are digital sticks, it would be a simple matter of replacing the existing contacts with ones from real arcade sticks.
(Xenophobe/Discs of Tron sticks would be good candidates for this).
If they are analog, you would quite probably need to replace the pots in two arcade analog sticks with pots measuring the values used in the sticks you are planning to hack.
I'm not sure if you can hack a regular DC gamepad for this either.
If not, that would mean buying the twin sticks AND two Happ analog sticks....Triple OUCH!
You can usually pick up the Happ analogs on ebay for considerably less than Happ sells them, but it would still be a VERY expensive proposition.
I'm not sure how cheap Ponyboy sells them in the Buy/Sell/Trade forum here, but he has all the Happ stuff (new) at a significant discount.
As far as them being both analog and digital, that's not really probable.
They may be analog, and have an Analog-Digital converter inside the controller that would allow them to ACT as digital controllers, however.
I've never even seen a Dreamcast though, so I'm completely speculating here.