I had something like this happen to me with a standard joystick once, as a matter of fact, I ordered 2 of the exact same joysticks. One for me, one as a gift. The first one I tried gave me the same error you are describing, the second one didn't. I called the company and the sent me a new one free of charge without having to send the "bad" joystick back. I gave the person the gift (the new one the company sent) and they hooked it up to thier computer and it had the same problem. So out of curiosity I took the originally deemed "bad" joystick over there and it worked on thier computer just fine. And the one the company sent me to replace the "not bad anymore" joystick works fine on my home computer. So now I have an extra joystick. I think the OS (ours was Windows XP Pro SP2) has some kinda glitch in it that is keeping it from recognizing the joysticks everytime, but I'm not Microsoft so I can't tell you for sure.
I know it's frustrating but contact xarcade and see what they say, they may know something we don't.