I mainly just want/need the joysticks to mimic the dual thumbsticks of an (single) Xbox/PS2 controller.
That is possible, but I'm not sure of all the hoops necessary.
Quasicade doesn't sell their encoders that have this functionality built into them, but they got them to work in this mode.
-retain original function as single flightstick
This may require separate encoders to pull off.
You might look at doing this in a modular manner where you are tapping the actual signals themselves from inside the stick (pot position, button presses), and then can switch encoders depending on what you need to do with those signals.
-function same as Saturn/Dreamcast twinsticks (if its possible to have analog joysticks send as digital?) by connecting extra wires to the appropriate button contacts, and having an extra generic cable-out to connect to a saturn controller adapter module.
Again, if you use the raw signals, and then encode them afterward, you should be able to run the raw signal through a D-A converter prior to hitting the encoder, and convert the signal to digital.
Extra/redundant buttons (which go to the same contacts) can be connected in parallel/simultaneously can they? (I mean, you can have multiple [digital?] buttons connected to the same contact without any problem right?)
Yes and no.
You will need to diode isolate them, or any time you press button 1, it will ground out all the other buttons connected to it.