I found a rather odd way to fix the gamepad issue. I tried the timing fix listed earlier, but no go. My gamepad was wild and uncontrollable.
So I used dosbox WITHOUT the earthworm jim .conf file. Just dosbox with a default dosbox.conf file. I mounted the CD image (named .inst) and then ran the game. It allowed me to setup my joystick just fine.
Then I loaded up the GOG shortcut and it worked fine. I'm not sure exactly which dosbox option is causing this. If I find it, I'll let you know.

Thanks, i'll surely try this..
I bought the game last night.. and I tried for an hour to play with a dual-shock adapter.
Then I decided to go to sleep.. ^^
I hope GOG will fix the problem and upload a brand new installer..