There was a set of configuration options introduced just before the release of 3.2 which didn’t get enough testing. The result is, if you installed a fresh 3.2 image, and are using a controller that lacks an analogue stick, the digital d-pad may not function.
If you upgraded via updating RetroPie-Setup and re-installing from binary, then your configuration won’t have been overwritten and everything should be ok – this only affects new installs.
If you have a 3.2 image and you want to manually fix it, load /opt/retropie/configs/all/retroarch.cfg into an editor and remove the lines at the end that look like
input_player1_analog_dpad_mode = 1
input_player2_analog_dpad_mode = 1
input_player3_analog_dpad_mode = 1
input_player4_analog_dpad_mode = 1
input_player5_analog_dpad_mode = 1
input_player6_analog_dpad_mode = 1
input_player7_analog_dpad_mode = 1
input_player8_analog_dpad_mode = 1
You can do this manually from a terminal using nano or by editing the file via the network share (configs/all/retroarch.cfg) – you can also use the configuration editor from the RetroPie-Setup script.
