hmm. I’m not any smarter. I installed the driver, and actually did option one after I read a post (on here) about how it was the easiest. I did configure the controller on initial boot. For N64 games, you have to put in an “exit emulator” button into the mupen config file, but for retroarch, “back”+”start” should work fine (it does for me).
Try this: see what Retropie names your controller (jstest /dev/input/js0) and then check the Retroarch config for it in opt/retropie/emulators/retroarch/config
editing that file may solve your issue.