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I tried to play local with a friend of mine, one using mouse and keyboard and the other with a steam controller configured to xbox controls. For some reason the controller kept on going as player one.

As with regular game, you'll need to disable controller in options first, or the game will assume that you are going to play with two controllers (not known why it works that way).

the controller keeps being overridden to mouse and keyboard I believe since i later used a ps3 controller perfectly fine for coop. Even changing NT's steam controller options did not work.