the segatools.ini file looks fine to me. I dont have any more idea, never seen this problem before.
so your game boots to menu, you can scan in a card, the colors are all correct on the controller, but doesnt respond to inputs? honestly have no idea.
maybe double check your 2 usb cables and try plugging the data cable in another USB hub (usb2 vs usb3), and plug the power usb cable into an actual power brick (if not already)
the paths can have spaces, I have spaces in mine and my game works fine, this shouldnt be fking up the tasoller anyway