The problem is NOT cancelling out the diagonals and making an 8-ways only recognize up,down,left, and right. This can already be done in MAME. No need for electronics.
The problem with an 8-way is it FEELS like an 8-way! A 4-way has a much different feel and because of it's design allows one to go from up to right, etc... faster and much more smoothly. A 4-way feels like a diamond more or less whereas an 8 way feels like a circle when rotating.
Trust me, this has been discussed a MILLION times. If you want a 4-way, get a 4-way joystick or get OSCAR's plates.
AD