Hmm, it seems to be registering that you touched a button. Log from the game session:
V/SDLSurface( 4939): Resuming last session
V/SDL ( 4939): SDL audio: opening device
V/SDL ( 4939): SDL audio: wanted stereo 16-bit 44.1kHz, 2048 frames buffer
V/SDL ( 4939): SDL audio: got stereo 16-bit 44.1kHz, 2400 frames buffer
W/AudioTrack( 4939): obtainBuffer() track 0x449298 disabled, restarting
W/AudioTrack( 4939): obtainBuffer() track 0x449298 disabled, restarting
V/front_end( 4939): Core Status: State loaded from: Mupen64PlusAE_LastSession.sav
W/AudioTrack( 4939): obtainBuffer() track 0x449298 disabled, restarting
W/AudioTrack( 4939): obtainBuffer() track 0x449298 disabled, restarting
V/TouchPad( 4939): Touch inside button boundaries
V/TouchPad( 4939): Pressed color 5926177
V/TouchPad( 4939): Closest match: button 9
V/SDLActivity( 4939): onUserLeaveHint()
V/SDLActivity( 4939): Saving session
This indicates that it detected a touch event inside the mask image boundaries, and recognized it as a button press for N64 button "9" (C-pad Left). I am a little surprised there is only one event logged, though. Could you run that same test again, and this time press all the imaginary C-buttons like 4 times each (to see if they are all registering, or if it is hanging after just one). If everything is working up to this point in the code, it must be broken somewhere later in the linkage with the input plug-in.