I see what they've done here. The Amiga mouse interface has two 8-bit counters for horizontal and vertical movement, and they've simply discarded the least significant bit in both sets of 8 bits, and used them to signal the status of the mouse-wheel.
It reduces the accuracy in half, and when you move the mouse slow it will snap into a perfect horizontal or vertical motion. If you move it slow enough you should be able to move the mouse across the whole desk without the pointer moving a single pixel. In some situations, moving the wheel may also cause the pointer to move or jitter.
It's hardly the end of the world, but it is an embarassingly poor solution. Why not just send those signals in serial on a separate pin, just like the CD32 pad does with all its extra buttons? That was Commodore's own working solution, ready to be used.
