RetroPie doesn't build its own Linux kernel, it uses what Raspberry Pi OS provides. Raspberry Pi OS uses currently the 5.4.x LTS kernel branch, but there's work to upgrade to the next LTS kernel version - 5.10.
Did you configure the controller via Emulation Station correctly? Maybe do it again to be sure.
There's a script to assign controllers to players. It works very well for me. Maybe it's worth a try for you.
Yeah there are, i don't have a full list but i can mention some :
sega system 24 (you found this one) and probably any other arcade systems using several m68k
sega system 18 and megadrive (m68k worked differently on those systems, so you need another version of cyclone which apparently wouldn't work with "normal" 68k games)
some neogeo games in mvs/unibios, they seem to work with aes though
It turns out that md_lbl and md_ need to have seperate size values for the "X" for some reason... it seems to be fixed now:
57d9a835-5fcf-4668-bbba-8de3854b4899-image.png
Thanks for providing the log file. I don't notice anything different between the 2 runs, so it's not something related to a configuration.
Try removing pulseaudio completely then reboot the system, this might get rid of any PA interference.