@magnetic
Yeah it works perfect on the pegasos. I build it with a J-PAC jamma-ps/2 interface. The joystick connects to the ps/2 port and you can connect your keyboard to the joystick. I would be willing to make one but it's not cheap: I paid 65 euro for the J-PAC, the buttons (16) where 6 euro a piece and the joysticks 20,00 euro a piece. And it's difficult in the netherlands to get the J-Pac, buttons & joysticks.
You could also go for a Hotrod , it should work on a peggy. Also, check out build your own arcade controls.