I've been thinking more about this and have some additional info. First off, I grabbed a shifter mechanism that I have from a Tercel (same as the Paseo's) and took a look at how I could add a mechanical switch to it to verify neutral position. I came up with nothing at first. Here are some pictures.
So, with not being able to use a mechanical switch like I had planned, I thought of using something like a garage door sensor that stops the garage door if anything interrupts the beam across the bottom. I started looking for those sensors and then thought of yet another idea. What if I just use a LED and photoresistor? That would be more simple, easier and cheaper. So, that is the current plan. I'll mount a narrow beam LED on one side of the plastic housing and a photoresistor on the other end. When the shifter shaft moves up or down into gear it'll allow the light from the LED to hit the photoresistor and change the voltage which the arduino will be able to detect as being in gear. This method should actually be much easier to create/mount versus a mechanical switch.