Not sure about PS2 but PS3 controllers are tricky to get to work on a PC.
This thread is pretty old. You don't need Xpadder for games running in ArcadeOX. You only need it if you want to use a regular controller in Java and Flash games.
Turn Xpadder off.
Plug your controller in.
Go to here
Retro Uprising - Arcade - Mortal Kombat
Select ArcadeOX Full Mode.
The game should load.
After it loads by default insert coin should be SPACE and start should be ENTER. All other buttons should be automatically set to your controller. You can reconfigure all buttons by pressing TAB to open the menu.
If that is not working then close the game and go to control panel.
In Vista and Win7 open Devices and Printers. In XP open Game Controllers.
You should find your controller there. If you do not then Windows is not recognizing your controller.
If you see your controller there right click it and select properties and make sure all of the buttons are working.