@mitu I've managed to get audio working now, I just needed to add the "-audio default" command to the below. Hope this helps someone else. Now just to solve the DPAD issue :) Thank you!

/opt/retropie/supplementary/moonlight/moonlight.sh stream -verbose -config - audio default "/home/pi/RetroPie/roms/steam/Steam.ml"

@mitu I had a look at the configuration/tool menu and found an option over there to generate the steam list of games. Thank you so much!

Just tried that and still get the same error as before

lv10: System "steam"is missing name, path, extension, or command!

Edit:

Solution found

<system>
<name>steam</name>
<fullname>Steam</fullname>
<path>~/RetroPie/roms/moonlight</path>
<extention>.sh .SH</extention>
<command>bash %ROM%</command>
<platform>steam</platform>
<theme>steam</theme>
</system>

extention is incorrect

<system>
<name>steam</name>
<fullname>Steam</fullname>
<path>~/RetroPie/roms/moonlight</path>
<extension>.sh .SH</extension> -------------------- change here to extension like its meant to be
<command>bash %ROM%</command>
<platform>steam</platform>
<theme>steam</theme>
</system>

What a noob mistake guess I just didn't notice.

The menu has appeared now so sweet..