Ok, so continuing on. I was able to get the gun configured properly in MAME in the positional gun games like Terminator 2 and Revolution X, etc. Enabling -lightgun AND -mouse in the mame.ini file did the trick for me.
Now that I had things working the way I wanted, I set out to getting a 2nd button installed on the gun to use the 'aux' pins on the PCB. I stole some wires from my old junk pile that had female pins on them, and they snapped into the 4 pin block that Andy supplied quite nicely.
My light phaser's back panel was missing when it arrived, so I needed to fabricate one from a spare piece of plastic. I used an old 5.25 drive bay cover I had lying around. After cutting the profile I needed, I drilled a hole to fit my button.
I had a few extra Atari volcano buttons, and the tiny cherry switches JUUUST fit in the available space. Here's a shot of my re-fabricated back panel, with the button fitted:

Yeah, I know, not the right color. Nothing a little sharpie action can't fix

Here's the final button installation. Maybe someday I'll try and tap into the 5v line and light up the LED *heheh*


The final positioning of my PCB. I used an exacto knife to trim away some more of the circular aperture that used to hold in the lens to allow the PCB to sit lower in the barrel. This small (but important!) adjustment pretty much took care of my issues with the gun's top hood blocking the camera's view of the LED bar on my monitor. I can now use the gun from 18 inches away with no issues. You can see that the bottom has a slight gap -- the PCB is about 1mm wider than the barrel at that height. It's OK, though, it's providing good tension that will keep the PCB nice and tight.
If I get some extra time tonight, I'll shoot a video of the gun in action. Otherwise I'll get it done in the next day or two.
I'm pretty happy with the way this turned out. Sega's Master System was my absolute FAVORITE console when I was a kid, so it's pretty cool that I can use this gun again.