Not sure if I missed an answer back to this bug but I want to confirm that I'm also seeing this behavior:

I've had that same problem with the center button on the D-pad no longer functioning; it's as if it pauses for a millisecond but continues playing.. or if it's already paused, it plays for a millisecond and then continues playing. It pauses and plays fine from the play/pause touchscreen control, but the D-pad can no longer play/pause as it used to. I have a preference for using the D-pad to control panucci and now the center button doesn't work in addition to the directionals doing nothing as they already weren't. I'm using panucci 0.3-4.

Still my favorite player! panucci++