Ok. I see a few things, so I'll just list the things to look at and work with
1), Mame (and XML) is pretty particular about case, You have
<controller id="Keyboard">
but that "Keyboard" should probably by "keyboard".
My utility tries to ignore case in most places, but Mame is not quite as forgiving.
2) Although it won't hurt anything (because I coded the utility to ignore it), you don't have to include the stick numbers in the <controller> port definitions, and I find it can get confusing if you do.
For instance, you have
<system name="default">
<controller id="U360 Player1">
<input>
<port type="P1_JOYSTICK_UP">
<newseq type="standard">
JOYCODE_1_YAXIS_UP_SWITCH
</newseq>
</port>
But keep in mind that in this area, that "JOYCODE_1_YAXIS_UP_SWITCH" really doesn't mean JOYSTICK_1, because JOYSTICK_1 might change on you. Instead, I usually just use "JOYCODE_YAXIS_UP_SWITCH". That way, there's no confusing a controller definition with an actual input definition. It won't necessarily solve any problems here, but it might help to keep things clear.
3) I'm assuming this is the CFG file +AFTER+ you've run the controller remap utility on it. The reason I say this is that it has a populated <input> section under <system name="default"> (the large section toward the end).
If that's NOT the case, then I'd recommend deleting the input section and run controllerremap from the command line (I usually create a little batch file called "remap.bat" to make this easier.
So, run the utility to remap things, then reload the cfg file, and the <input> section should now contain a bunch of port definitions. If it DOESN'T, that means you didn't run the utility right, so check your paths, etc.
If it DOES, then you've got your paths and all right, so now it's just a matter of identifying what ports aren't mapping right.
4) Keep backups. I'm a software developer so I use a version control system, but if you can't or don't want to do that, just make backup copies with incrementing numbered file names or something. That way, if things get screwed up, you can quickly revert back.
5) And finally, start slow and simple and work your way up. For instance, instead of trying to define the P1 stick with Lightgun and mouse ports, try just defining the up/down/left/right and get that working first.
<system name="default">
<controller id="U360 Player1">
<input>
<port type="P1_JOYSTICK_UP">
<newseq type="standard">
JOYCODE_YAXIS_UP_SWITCH
</newseq>
</port>
<port type="P1_JOYSTICK_DOWN">
<newseq type="standard">
JOYCODE_YAXIS_DOWN_SWITCH
</newseq>
</port>
<port type="P1_JOYSTICK_LEFT">
<newseq type="standard">
JOYCODE_XAXIS_LEFT_SWITCH
</newseq>
</port>
<port type="P1_JOYSTICK_RIGHT">
<newseq type="standard">
JOYCODE_XAXIS_RIGHT_SWITCH
</newseq>
</port>
</controller>
....
Same with the keyboard options.
edit the CFG file, save, run the remap util, and reload the cfg file to examine the changes it made. If they look right, fire up mame with rom you know uses those inputs and verify that they work in Mame.
Be sure to remember to tell mame to use a specific controller file! You can do that in the MAME.INI file or via command line, but you do have to tell it one way or the other.
Once you've got a few basic input defs working, save a backup and expand out from there.
And let me know how things go. If you still are having issues, just post back here. I try to monitor the boards pretty regularly.