Brooksware2000
This was debated around Christmas. A little bit of a pissing contest ensued. I have written code for a PIC16F84 (because that's what I had laying around) for a friend. Works with an IPAC and seems to catch all the keystrokes in something like Wordpad but jumpy in MAME32. I can email if your interested. I was going to share on the board as well but haven't done so until I figure jumpy problem out.
Geekbrain
Jumpy Problem (My Guess) - The true SNK rotaries are set up so each click was one turn of the character (not sure if it was 30 or 45 degrees). This is a pain to work with a keyboard or mouse, so MAME is set-up so that the character rotates from when the key is initially pressed until the key is released.
What this means is that rotating the stick slowly causes the switch to be closed too long, and the character over-rotates, and rotating the switch too quickly causes the character to under-rotate.
Mc-Escher and JerryJanis added code to make the rotary games a true one-increment per button press option. Urebelscum added this into MAME Analog Plus.
Try your interface with MAME analog plus, and map the outputs from your interface to Button 4 and Button 5 in MAME analog plus instead of the DIAL inputs.
For example, MAME currently has DIAL set to something like Z and X on the default codeset. Assuming you have you I-PAC and interface set so rotation is Z and X, go into the TAB menu in MAME analog Plus and set Dial to "NONE" (or some unused key) and set P1B4 to Z and P1B5 to X (P1B4 and P1B5 inputs will not be available in the official MAME version).