I will use this thread to document my efforts to get my SMS gamepads working using a cheap hacked USB gamepad controller. Here's what I've got so far:

One OEM Sega Master System controller. Uses a connector similar to the 9 pin serial ports you see today.

One super cheap USB gamepad from the 'bay. I think I got this one for like $3.
NOTE: Before opening the gamepad and getting all crazy with my soldering iron and such, I tested it on my cab. It works.
Here's a few shots of the disassembly:



Based on my last pic, it shouldn't be too hard to tie into the 7 points I need for my SMS controller: up, down, left, right, A, B, and ground.
More to follow once I get my hands on a scrap DB9 cable.