For anyone running into this and having issues for... Not paying attention to details for whatever reason. (ADD in my case)
1: ES_SYSTEMS.CFG was not in the opt folder for me, but it is recommended to have it there anyway for alterations, so make a copy of it there.
sudo cp /etc/emulationstation/es_systems.cfg /opt/retropie/configs/all/emulationstation/es_systems.cfg
2: the <pi> in the code above is the user name/folder. in my case, the folder is called "retropie" - maybe because it's a custom installation. I needed to change things as follows:
<system>
<name>pico8</name>
<fullname>PICO-8</fullname>
<path>/home/retropie/pico-8</path>
<extension>.sh .p8 .png .SH .P8 .PNG</extension>
<command>/opt/retropie/supplementary/runcommand/runcommand.sh 0 "/home/retropie/pico-8/pico8_dyn -run %ROM%"</command>
<platform>pico8</platform>
<theme>pico8</theme>
</system>
I also was not able to install wiringpi, but the gamepad worked anyway. I wasn't able to exit it via gamepad yet, but I've been very away from retropie, so I might just be missing something. (also I was using a gamepad/mini keyboard combo, so it wasn't an issue yet.)