That... is bizzare. I don't have the PC Controller, I have the 360 Controller on my PC, and it works just fine. So, my first question is, is it the wireless controller using a USB cord? Or is it an actual wired controller? Some things to try for general trouble shooting, you can try a different USB Port.

Another question I have for you, are you sure that it is triggered by fighting and not simply the passage of time? I mean, if you sit there and do nothing, will it eventually swap over to player #2 if you aren't using it?