1 - So I'm new to all this.. I got RPI 3 Model B, I got Raspbian installed and PiPlay.
When I reboot it shows PiPlay screen and gave me a message about what button does what. I couldn't do anything. I rebooted again and it boots me into the PiPlay menu where I choose a system I want to play.
Nothing on my Xarcade stick works, which I understand it might need to be configured somehow.
If I plug in a keyboard and mouse instead, the keyboard does nothing, moving the mouse causes the screen to go black. Moving the mouse uncovers part of the Raspbian desktop. I have to move the mouse around to every area to get it to display the full desktop. It appears PiPlay has closed.
Any suggestions on what to do? I only care about playing MAME right now. Still need to get ROMS on.
2 - Is the MAME romset I still need to use 0.106? I have the latest 0.177 here already.
For your first question - I don't know the XArcade stick - but when it is emulating a keyboard, you'll get into trouble when a second keyboard is connected. It's simply not working. Try to prevent the Raspian Desktop to start, or end it (Ctrl+Alt+Backspace) and relaunch piplay (python launchmenu.py). Start trying with just a keyboard connected.
Second: I suggest to get a matching ROMset for the MAME versions from the FAQ: MAME Rom Sets MAME4ALL uses 0.37b5 AdvMAME uses 0.106
Even if you have a newer one, it might not work. Because of specific MAME features/issues ROMset has to match MAME version With clrMAMEpro (software to check/adjust ROMsets), you might get an individual ROMset out of your source. Good tutorial: https://github.com/retropie/retropie-setup/wiki/Managing-ROMs