This could be very straight forward, I'm not sure how far you could take a controller redesign for the Master System, but one thing that it should be made is to add a pause button. The system has one on its console, could that functionality be transfered over to the controller?
The d-pad could be made into a cross... Or maybe something like the Neo-Geo joypad, that one's pretty cool. And that clickety-click sound, hnnnng!
And the rectangular case... Could be faceted like the console (so you'd keep the overall aesthetic), but it just begs to be more ergonomic.