I solved my issue. I did a search for USBWheel and Retropie and found this article:
https://github.com/RetroPie/RetroPie-Setup/issues/864
It appears that the CFG USBWheel___.cfg is being written wrong for the d pad.
I had to change these lines:
input_up_btn = “-1″
input_right_btn = “+0″
input_down_btn = “+1″
input_left_btn = “-0″
into these lines:
input_up_axis = “-1″
input_right_axis = “+0″
input_down_axis = “+1″
input_left_axis = “-0″
Very bizarre, but now it’s working for me.