Turns out the only way to bypass that is to go into single player then collect the power-up. After that you can exit the level then save the game and exit then when you boot back up into co-op you can pick it up just fine. You will have to do this with all power-ups sadly but it can be done pretty quickly.
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How do I go into single player? Mario is always there even if I turn off split screen. Do you mean I have to pop in my SMG disc and go into the vanilla game? Or is there an option to do it within the mod? Also why is Luigi always P1 and why does he have Mario's voice xD it's cool if there's no way to fix it but it would be nice if there was