There would be some tweaking, yes. For a game that handles d-pad diagonals like a fighting game, the method would need to get smart with how it shifts the active area or you might end up doing say... diagonal up and right when you've only moved straight up.
But it's nearly as simple as making the distance between the max values very small. It's even easy to let the player customize this distance with options. You can then slide left when you're going right just as you would on a dpad, and even if you overshoot by a mile you'd still only need to slide a short distance to move back to the right.
I'll say that while I absolutely hate touch screen controls, I have no doubts at all this method could work quite well (and probably better than it does for analog controls) for d-pad controls and wouldn't mind it myself unless I was playing something
like this. Until touch screens can give
tactile feedback buttons are better for any game that's goal is responsiveness like the linked game, though. I'd say the movement controls aren't even the problem, because of how the buttons always work. You can press two at once, and usually the game only cares about one. It's the other buttons. When I play Tetris Grandmaster, I can feel which one is rotate right and rotate left and handle the speed. Throw a third button like hold piece and this method no longer works because I have to at least remember where one button is. Same with a game that requires you to hold a shoot button while you must jump sometimes like Gunstar Heroes. Even worse is a game like contra where you PRESS a shoot button and must jump. But now I am so far off topic, that I will stop my rant.