Stiggy dropped round today for a cuppa and brought his sick Master System with him. I have 2 of the mark 1 MS units so we did a swap.
Basically this system was always seeing the UP direction pressed on port 1 even with no controller connected.
Looking at the schematics it would appear that the custom IC 315-5237 has an internal pull-up resistance on each pin and the controller grounds this to register a button press. As I found the pin giving out a permanent low signal chances are something has gone wrong internally.
What I did was fit a resistor between this pin and VCC which changes the default state to a logic HIGH but will still allow the controller to drive it LOW for the button press. Almost certainly not the ideal way of doing it but I don’t know the MS very well at all so this will have to do.
The system now works perfectly. This MS also has a couple of built in games which my old one didn’t.