I think it is peripheral but im not 100% sure. I am trying to make this for a friend. I have dealt with USB in the past and it was oh so much fun.....
I have looked around a little bit and posted in a few different forums and the only other recommendation I got aside from arduino was to use a raspberry pi. I would rather use the arduino and just make a standalone board with an atmega chip in it that does this as opposed to leaving either the arduino or the pi connected constantly.
I dont really know how to explain what I am wanting to do.... I have seen projects where you buy a second atmega chip, program it with whatever I would need to program in with, make my own circuit boaed and set everything up on the board, solder it, put it in a housing and viola!
The closest thing I can find to explain what I am wanting to do with the atmega chip is this instructable where you program it and drop it in the nes contoller and bam!