Quoted from kbliznick:but then how do they decode the color changing LED's on a game like ACDC premium. Is each insert 3 spots in the matrix?
Generally, no, it is a separate circuit like TimeBandit mentioned, but AC/DC does have a traditional lamp matrix. The Fire button's three separate colors are three different locations on the lamp matrix for each color. So changing the colors can be handled both ways, each color takes up spots on the matrix if you go about it that way.
Chaz at Stern said they convert the matrix data into serial data if I'm not mistaken. I think they can use the current code just fine with their new system, which hopefully means any changes to the new version will also be applicable to the original games.
Granted, my limited understanding is from 50k feet, I really don't know how their system actually works. I'm just guessing on how I see that AC/DC works and some comments from Chaz.