Having the exact same issue, since today.
HAVE tried both in big picture, and without.
Have tried with multiple controllers, ps3 and ps4.
I even played splitscreen yesterday, and now, today, it gives me the above mentioned issue.
I CAN enter a game, and i CAN get the corner menu to pop up, by pressing 'x' on my ps4 controller, but i cant get any further from there. Cant add player 2, cant take over player 1, cant cancel, but i CAN press the arrow buttons to move the selector.
When i go to options to test my controller input in the controller tab, everything seems to be working fine. All the buttons produce an effect, and seem connected to the right input.
<3