Well here's an example of a line I removed the "mousecodes" from:
<control name="P1_PADDLE_V" inputCodes="|JOYCODE_1_ANALOG_Y|KEYCODE_UP|JOYCODE_1_UP" allowConfigPlayerNum="1"/>
...pretty much to all "Player 1 and 2" controls that involve spinners, dials, pedals, and analog joysticks, which is pretty much how I fixed the problem in the .ini file back in the older version.
I just took my cabinet out of "maintenance mode" (people coming over) so I will create a debug file hopefully tomorrow or early in the week Thanks for your help!
Here's another option that doesn't require editing the xml file - from the Gen Input Map application, change the input port for your trackball from MOUSECODE_1_ANALOG_X and MOUSECODE_1_ANALOG_Y to TRACKBALL. The advantage to this is that the trackball will only light up for games where the trackball is the primary control. The downside is that the trackball actions won't be spoken. For example - in Marble Madness, you won't hear "Up, Down, Left, Right". But if you're not using the voice stuff or you don't care, this is may be a better solution.
To be honest, I did kind of edit it quickly instead of meticulously, so it is quite possible I missed a few entries. I will play around with it. Although, I think I may go with the other solution you presented since, as you mentioned, it's a lot quicker and cleaner. I do use the voice, but the only control that gives the directions (up, down, left, right) is the trackball. I'm going to give that a shot. Thanks!

Please do tell me if I'm getting annoying, but I did notice one other oddity. Although I didn't change anything in colors.ini, Neo-Geo games that previously lit up with the four standard colors no longer light (or announce) at all. For example, Magician Lord. Here's the entry in colors.ini:
[maglord]
P1_COIN=White
P1_START=White
P1_BUTTON1=Red
P1_BUTTON2=Yellow
P1_BUTTON3=Green
P1_BUTTON4=Blue
P1_JOYSTICK=Black
P2_COIN=White
P2_START=White
P2_BUTTON1=Red
P2_BUTTON2=Yellow
P2_BUTTON3=Green
P2_BUTTON4=Blue
P2_JOYSTICK=Black
But it doesn't register anything. Same with the Metal Slug series, etc. I'm going to play around with it and see if I come up with anything but also wanted to ask you in case I am missing something.