It's not the controller. The controller works perfectly in DC games.
The issue is that the DC D pad has a larger center post under the cross, making it quicker to go in any given direction and harder to get back. This means, for instance, a lot of false UPs when you're trying to dodge in Punch Out.
I get the impression that since the D pad wasn't designed to be the primary control on the DC, it just wasn't made to be used for such high speed/precision.
The analog stick works better for accuracy but just doesn't feel right... it's not a D pad.