OK, I found a cure. But there may still be a bug that needs addressing -- I just found an acceptable way around the problem.
After comparing my attract.cfg with a default attract.cfg, I saw left, right, up and down were mapped to keys and a single joystick in the default config. In mine, since I have two sets on controllers on the panel, I have two joysticks mapped. I thought I would like the person standing at P2 controls to be able to navigate the menu, too.
When I removed the P2 joystick mappings, everything works fine again.
In retrospect, I makes more sense for P1 to be the "driver's seat" anyway, instead of having two people being able to control the menu simultaneously.
So problem solved, but kind of weird and maybe there is an issue lurking there somewhere.