So you are saying to split a parrellel cable... run each wire from each button to that cable (just make sure I match them correctly on the other cable color wise?) then split a parrallel cable on the other side of the switch and run the appropriate wire to the encoder which in turn will run the PC. On the same side as the encoder run another parrallel cable that runs to each appropriate wire on the dreamcast hacked pads?
Yep, I hope these pictures will give you all the detail you need:
hacked and numbered cable (to DC pads)

connected on position C of the printer switch:


In this pic you also see the black cable directly running to the key-encoder (no terminal block needed)

Be sure to use cables which have all wires connected to the same pins on both plugs (in Holland these are called switchbox-cables or printer extention-cables). Don't use Null-modem cables, the look the same, but have some wires twisted inside to connect 2 PC's to eachother.
Will this also solve the power situation to not fry my parts?
Definitely.

Lastly, if I purchase that VGA adapter for the monitor, how will I be able to run both the DC and the PC withouth having to take off the adapter?
Since you're using a VGA-monitor, I'd say one of these would do the trick:

--- Or should I just try and get mame working with the CP on the PC first and deal with the rest later since the encoder is just screw connectors and re-wiring wouldnt be that hard??
You should NEVER EVER get your machine in working order before it is completely wired and all!!! You'll never finish it that way

That said, you could wire all switches on the CP to the keywiz, and at the same time wire a stripped printercable to the buttons you need to use on the DC (which is less than you have on the panel right?).
I'm just not sure how the keywiz would then react if you turn the PC off and the DC on. I don't know if it (the KeyWiz) will receive current coming from the DC controller ports through your CP-buttons and how it will affect it's operation...