Thanks hamsfarthing.
I managed to install PPJoy and get the virtual joystick working, that is, it detects the movements. However, the problem persists.
I used PPJoyJoy to assign axes from my saitek driver to the virtual joystick. Is that what you did? Actually that might not work since you would still be going through the saitek driver.
How did you assign your real joystick axes to the virtual joystick?
Also, how do you make sure I-war is actually using the virtual joystick?
Thanks a lot.
-belgerog
EDIT:
Ahhhh it's working now!
I uninstalled some of the other saitek drivers, and I am using the one that gets installed when you plug the joystick.
Actually, I had deactivated the sliders and all in my virtual joystick but I had to reboot to see the effects, so they were still affecting the lateral thrusters before.
Thanks a looooooooooooooooooot, hamsfarthing!

I'll attach some images to show how i've got it set up.
ppjoy.jpg shows what I used for axes in ppjoy. Besides that screen it's mostly just clicking next to get it set up.
In game controllers in the windows control panel you need to set the virtual joystick as the preferred device under advanced for it to be detected by Iwar.
Then ppjoyjoy should be configured something like in ppjoyjoy.jpg, though you can switch buttons around there if you like. PPJoyjoy also needs to stay running as long as you want to use the virtual stick in Iwar.
I didn't map the slider on the throttle or the rotaries, as I suspect those are largely responsible for the original problems with the X52.
Also, even though adding pov hats in ppjoy is useless as you can't make ppjoyjoy use them, you can perfectly set them up through the saitek profiler software. All profiles made there seem to apply to the virtual joystick too.
Unfortunately not, but it's fairly easy to set up. Installing it can be a bit trickier though I guess, at least if you're using the 64bit version of Vista or 7, as ppjoy needs to install an unsigned driver which doesn't work on the 64bit versions unless you put the OS in test signing mode.
EDIT:
Good to see you got it working, Belgerog!
Now if you're bored you can go around making a profile in the saitek software and assign the lateral thrusters to one of the hats for problem-free thruster action!

Great, I'll try this too when I have the time :)

You don't really have to uninstall saitek drivers - just go co control panel/game controllers (where you see both the ppjoy virtual joustick and your other joysticks), press "advanced" button and choose ppjoy as preferred device. That's it, now i-war will ignore actual saitek joystick, but will still receive virtual keystrokes mapped in saitek configuration panel.
That's how i got around to mapping controls problem:
I wanted to use 3dconnexion spacepilot as lateral and forvard/reverse trusters control plus saitek cyborg evo force to control the ship's heading/throttle. First i created a virtual joystick with four buttons, four axes and one pov (more than enough for i-war) and selected this virtual joystick as default in control panel so that the game won't receive input from the real joystick. What is cool is that force feedback still works :) Next i used saitek profile editor to map real joystick hat and buttons from number four up (1-3 remained at default settings) to contact selection keystrokes ('.' ',' '/' and 'm' keys) plus some other functions i wanted there.
Next, i used a program called glovepie to map real joystick axes and buttons 1-3 to virtual joystick axes and buttons 1-3. 3dconnexion sideways and up/down knob movements were mapped to virtual joystick hat (hat set to lateral thrusters mode in game options) and forward/reverse knob movements to thrust override (a/z). Plus, i've mapped spacepilot's hardware buttons to some useful functions like wingmen attack/protect/formate/report orders, zoom, switching workstations, etc.
I also have a second mode activated by a keystroke that maps virtual joystick axes to spacePilot's rotations allowing for full one-handed ship control Great for non-combat situations like manual docking or simple navigation :)
Finished the basic campaign this way and making my way trough defiance now. Works like a charm.
I hope edge of chaos makes its way to gog so i can play it with similar controls :)

Those things now show up as DirectInput game controllers? I recall 3dconnexion (descended from Spacetec, who made my SpaceOrb 360 and the professional-targeted Spaceball line; not to be confused with a soundtrack or a hilarious parody) not wanting to support gaming applications at all.
I'm not sure I'd like the puck shape, though. Ever since Logitech got their hands on the tech, they've been using those CyberMan 2-ish pucks (only even flatter), not the spheres that Spacetec favored (SpaceBALL, after all). Furthermore, I doubt the SpaceBall 5000 USB has much in the way of driver support, so if it's a recent update, it probably didn't get it. (That's the one I'd probably go for, since it's the only Spacetec-era device to support USB. Everything else is old-school DB-9 serial, my SpaceOrb 360 included...)

They are directinput controllers, but they don't show up in joysticks list. Sadly, 3dconnexion still doesn't really encourage game developers to support their controllers and doesn't do anything to allow some Custom mapping for gaming use.
However glovePIE can still read these devices and map 3d mice movements to virtual joystick (via ppjoy).
Here's a part of my glovepie script:
[code]
//store 3dconnexion's coordinates in variables for easier use
var.x=spaceBall.x
var.y=spaceBall.y
var.z=spaceBall.z
var.v=spaceBall.Pitch
var.w=spaceBall.Roll
var.u=spaceBall.Yaw
var.thresholdTrans=40
//these variables are used to map 3dconnexion's movement to digital
//outputs like joy buttons and keyboard keys
var.plusX=(var.x>var.thresholdTrans)
var.minusX=(var.x<-var.thresholdTrans)
var.plusY=(var.z>var.thresholdTrans)
var.minusY=(var.z<-var.thresholdTrans)
var.plusZ=(var.y>var.thresholdTrans)
var.minusZ=(var.y<-var.thresholdTrans)
//map 3dconnextion's left/right and up/down translations to virtual (ppjoy) hat
PPjoy.Digital10=var.PlusZ
PPjoy.Digital11=var.PlusX
PPjoy.Digital12=var.MinusX
PPjoy.Digital13=var.MinusZ
//map 3dconnexion's front/back translations to throttle override
Keyboard.A=var.PlusY
Keyboard.Z=var.MinusY
//map real joystick buttons to ppjoy's buttons (because only one joystick is used by iwar)
PPjoy.Digital0=Joystick2.Button1
PPjoy.Digital1=Joystick2.Button2
PPjoy.Digital2=Joystick2.Button3
PPjoy.Digital3=Joystick2.Button4
//map real joystick axes to ppjoy's axes (because only one joystick is used by iwar)
PPjoy.Analog0=var.u/200
PPjoy.Analog1=var.v/200
PPjoy.Analog2=var.w/200
PPjoy.Analog3=Joystick2.z
//map some of 3dconnexion's keys to keyboard keys.
Keyboard.F1=Joystick0.Button1 //COM
Keyboard.F2=Joystick0.Button2 //NAV
Keyboard.F3=Joystick0.Button3 //WEP
Keyboard.F4=Joystick0.Button4 //ENG
Keyboard.F=Joystick0.Button5 //Firing mode
Keyboard.X=Joystick0.Button6 //Sniper zoom
[/code]
Note that glovepie sees the 3dconnexion controller both as SpaceBall and Joystick0. The latter is useful because it can access all its buttons, no matter how they're programmed in 3dxware control panel.
3dconnexion still hosts drivers for old devices, even older than serial spaceBall, and they're supported by glovepie too. That makes these things cool gaming devices (of course after finishing the CAD work ;) ), and not only for space sims - i recently played Command&Conquer with a spaceNavigator (mapped to pan map, zoom and rotate the camera). It was really cool to have full control of the camera without reaching to the keyboard :)
As for the shape, i never used spaceBall, but i do like the new knob shape. It has rather low profile so it's easy t use with just tho or three fingers instead of having to hold it in entire hand. Plus, it's easier to reach the buttons in front of the knob ;)
As for the spaceBall, i also wanted to get it (as an upgrade for spaceNavigator), but then i noticed that you can get a much more modern spacePilot on ebay at the same price as spaceBall USB (about 50 bucks), so i went for the latter and so far i'm satisfied.

Well, these $50 spacePilots aren't new, but i got mine in a perfect condition - it even had protective foil on lcd and the knob. But, considering the fact that it has no mechanical sensors and only moving parts are a few springs, if it works when you buy it it should keep on working for years.
But you're right, these prices are funny. Selling my spaceNavigator PE (the most basic model, even without a license for commercial use) covered both the purchase of a much more sophisticated spacepilot, and shipping to Poland.
Oh, and by the way, I-war 2 is even better with a spacePilot - besides supporting multiple joysticks (no more mapping real joystick to ppjoy) it supports analog lateral thrusters control. Cool thing on stealth missions where a full power burst from lateral thruster can blow your cover :)

Dunno about the stealth missions, but I definitely know about the analog lateral thruster control. I DID play it with my SpaceOrb 360 on an older PC at one point, after all, and it worked pretty well except for the lack of buttons and a D-Pad or hat switch for that menu. (I had those lateral thrust icons showing up pretty much all the time, though.)
What I don't know at this point, if I get one, is how much of the control I'll leave to the SpacePilot and how much to my Thrustmaster HOTAS Cougar + RCS pedals. I foresee myself using the Cougar stick and RCS for rotational axis control, but the SpacePilot for translational/lateral axis control, and the Cougar throttle as a sort of cruise control for forward thrust when desired. The stick has enough buttons and hat switches for the likes of I-War 2 that I shouldn't be bothered too much by my left hand having to switch between two very different input devices.
Also, I just remembered about a "3D/6DoF yoke" I thought about, based on some game controller I saw a long time ago and don't know the name of that can basically be summed up as a ring with two handles sticking out the sides. I don't know how I'd actually go about building one, though; might have to put a Spacetec/3Dconnexion device in the middle and stick a pair of grips on the sides of the ball/puck, which would undoubtedly mean very little physical travel/throw and potentially more difficult precision control for those who aren't used to it.

I know this discussion is years old, but I just wanted to post to say I'm glad I found that I wasn't just going crazy. With my old X45 on XP (I keep it around primarily for old stuff like this), as soon as I used the throttle and turned just a bit, the lateral thrusters would fire and send me off at max thrust to the side. The odd thing is that enabling free-flight doesn't have this problem, so I thought it was something buggy or my failure to understand of how the 'corrected mode' works.

I don't have any problems with the joystick otherwise, and actually like the idea of having the control system be funky and unwieldy, so I may try to run in free-flight all the time [using lateral thrust to adjust], but I expect it will probably turn out to make the game too difficult. I may experiment with using a macro to enable corrected mode for a few seconds as a sort of 'trim' button.

I have a Thrustmaster HOTAS Cougar, and I experienced this issue. Basically the Range and Ant_Elev pots were controlling the lateral Thrusters, also the throttle is controlling the Foward/reverse latteral thrust.

I have partially solved it (but only for the TM cougar joystick) by using the Cougar control panel to disable all the axes that I don't want to use and bind the ones I wish to use to the correct DX axes.

These were;
* windows 1 - X-axis
* windows 2 - Y-axis
* windows 3 - throttle - inverted
* windows 6 - rudder

This is nearly good enough but the throttle is still the forward/back Latteral control and not set speed as it should be.

I will post if I can solve that one.