Yes, I believe that Mala only looks for two USB devices. 4 player games are still fine, but player 3 and 4 just cannot do things like surf the Mala List when in the frontend.
If you wanted a workaround to have access for P3 and P4, you could do something like set up Joy2Key so that P3 and P4 put out keyboard strokes, and map the keyboard to Mala Controls.