I'll answer some questions:
I'm still really debating whether using 2 Player Vs 4 Player. All my friends tell me to do the 4 player, but I generally hate the look of the oversized control panels.
A nice compromise is to make a standard 2-player panel and stick a couple of USB ports somewhere handy so you can hook up gamepads. (as you said). Sure, not as authentic but it works in a pinch. Unless you have 4-players games being played constantly (i.e. - they live with you), it's not really a pressing issue to get a 4-player panel going. Some of the best competitive games are 2 player simultaneous only.
BTW, the most buttons needed for 4-player games is 4 and only because of Dungeons and Dragons. Most of the time, two to three would suffice.
I like the look of the LED-Wiz and RGB Lighted buttons. But I'm a little confused on what I should get. Should I buy 4x LED-Wiz (16output/16input) devices (if I go the 4 player route), that way I was thinking it might simplify controller output - and I wouldn't have to use an external power source for the RGB lighted buttons
You'll need 3 inputs per button with RGB LED (or one for single colors, like Start Buttons). There are 32 inputs per LED WIZ. Do the math, buy accordingly. With a four player panel - assuming 4-6-6-4, you may only need three LED-Wiz's tops (two if you don't light the start buttons).