The 360 uses an emulator to run the original xbox games so you have to connect to xbox live when you first play the game. that will download the updates you need.
For the controller - first, make sure the batteries are still good in that controller. Next, there's a little button on the front part of the controller (the guide button is on the top). After controller 1 is set up and recognized, hold down the button for a second or two, then hit the guide button to connect it to the console.
If it's not recognizing it as controller2, try connecting it as controller1. on controller1, hold down the guide button until you see the shutdown menu; shutdown the controller. Hit the guide button on second controller. The system should recognize it as controller1. If it's not being recognized, it's probably the controller. Change the batteries or get the plug & play kit so you can connect it directly to the console (also charges the controller so you never have to stop playing)
Gamertag - shamu68
currently playing R6:Vegas and COD2 (when my wife isn't playing Viva Pinata)