Using Arduino as an LED controller on a PS360+ powered fight stick.

Hello! I'm attempting what seemed to be a rather simple problem at first glance, but due to my limited knowledge of Arduino workings I need some help. I'm trying to use button outputs from a PS360+ arcade controller. Each of the button terminals output +5V, and is meant to be connected through a button to the grounds on the PS360+.
What I want to do is have an Arduino somewhere in between the button output and ground on the PS360+, to control and animate LEDs. What I've done so far is connect the VCC of the PS360+ to the Arduino's VIN and the ground of the Arduino to the PS360+'s button ground, which powers the Arduino. I then have a button output from the PS360+ going into the button, and the button's ground is connected to an Arduino pin. That Arduino pin's mode is set to INPUT. I then have another pin with an LED which is set to the value of the input pin.
For some reason, the Arduino seems to get random input from the button(Though it does seem to react somewhat to buttons presses), and the PS360+ does not recognize the button press. Setting the input pin to pullup mode has even less result, and never reads low.
Anybody got any ideas?

Please provide a circuit diagram. It's unclear to me how the button is connected in the PS360+ and to the Arduino.

Here you go. sorry for terrible quality, I was in a rush.

It's still not clear. Is 1P an input or output?

It's an output.

How you ever get this to work ? I want to try similar thing with my razer Panthera fighting stick