Which flavor Arduino?
First, you need an Uno model, see: http://arduino.cc/blog/2010/09/24/dinner-is-ready/
We replaced the aging FTDI chipset with a custom made usb-serial converter built with an Atmel ATmega8U2 this provides lower latency and doesn’t require to install any drivers on mac and linux (on windows all you need is a simple .inf file) more advanced users will be able to reprogram the USB chip to make the board show up as a variety of USB devices (Keyboards, Mice, Joysticks, MIDI etc)
Older models could only show up as serial ports (through the FTDI chipset).
Next, there's an article which shows how to emulate a joystick on the Uno (you will need to register on the Arduino forums to see the examples). See: http://arduino.cc/blog/2010/10/24/arduino-uno-as-joystick/
Note: you will have to replace the Arduino firmware.