I finally got around to finishing this project giving it a nice 3d-printed enclosure :-)
I changed out the original joystick i had to a PSP style joystick to try and make the controller not be huge. It is sill large compared to the "tv" but it is at least smaller that the first prototype I printed.
If I ever continue on this project there is a lot that can be done to make the "game" part of the software more fun, right now it is more a tech demo were you walk around trying to find the aliens and shoot them. It would be fun an try to add some simple AI so the aliens can fight back but I think that might need a faster/better processor than the atmega328 that I am using today.
Hope you enjoyed this project and please let me know if you also manage to get the code running.
//over and out