What I would do..
1) Get a budget... why? years after my first cabinet is playable... I still buy stuff on ebay

2) Decide what games you want to play most of the time.
why? Super joysticks are GREAT for some games... but for fighters I like compititions. Also what kind of control panel you build.
3) Decide if you will build a cabinet or referb an old one. If you cant get a free or very very cheap cabinet... then build one. Unless you are looking for one with a real arcade monitor. then I would get a cabinet that works so you can test the monitor before starting (don't want to spend 100 bucks on a video card to find the monitor is blown).... But if going with SVid TV or VGA monitor, you will strip so much out of the cabinet, that you might as well just build one...
4) Encoder or hack... Best to worse... Encoder, Hacked joystick, Hacked keyboard. Cheapest to most expensive. Keyboard, joystick, encoder. Most keys: Encoder, keyboard, joystick. ... Just go with an Encoder if you can afford it... You will NEVER regret it... (and I've don't them all...Started at keyboard, hated it... joystick... was ok... Encoder loved it)
5) If you are in a small room... Consider building a Multipurpose entertainment system. Svid TV (or VGA card with TV in + TiVo support), VCR, DVD, Dreamcast, PS2, Arcade, ect. There are a few cabinets where the monitor is more straight up and down. My favorit for this is a pedistal cabinet and a wall mounted tv myself. But worth thinking about.
good luck