Any resolution to this? I have the exact same issue and have tried different options as well. Launchbox pause works with MAME but Big box does not. I even default all my controls thinking maybe I removed an important key and still having the same issues.
=====UPDATE
so I finally came to a work around. Being that the pause function only works for me when I uncheck suspend emulator process it still does not pause the acutual game. I went ahead and made automation keys for the pausemenu. P will pause mame, and holding p and pressing escape brings up the menu. Only way I found a way around this was to uncheck that suspend emulator process in launchbox and do keyboard automation in bigbox. Let me know if this helps.