my openion for what its worth, is that this could be done so many ways, I would convert it to a joystick and mount it in place of the d pad. this would still give you full diagnal control also. yo could close it up and use regular buttons to contact the vias, but I think this would limit the mobility of doing like a half circle combo.
I think this could be done similarly to the duel anolog nub for the psp.
I like the idea and inituative, but I would probably not use it. I dont play those kind of games, I would however probably enjoy doing the mod, I dont imagine there would be much to it though, maybe half a day's work