before i buy an Arduino > NOBODY has done this yet that i know of >>

As far as i know the track ball would have encoders since it can keep rotating. The game controller's thumb stick has 2 potentiometers. if you want the arduino to control the game controllers thumb stick directly you will have to use a digital potentiometer from the arduino to the thumb sticks potentiometers. the track ball's encoder would then be read from your arduino