FadeToGrey: Since this game was made way before the Xbox 360 Controller (and XInput) came along, may it be that it only natively supports DiInput gamepads?
Obviously glad to see that there are workarounds for the 360 controller though!
XInput controllers operate in a DirectInput mode for older games that don't support XInput.
http://pcgamingwiki.com/wiki/Controller I, myself, have used a 360 controller in a number of older games. What I've found is that it works, but you get some oddities. Like the lack of deadzone and sensitivity settings so the thumbsticks are sometimes not great, and the right thumbstick mappings are off, so that on the right thumbstick the vertical movement operates what should be a horizontal movement and the horizontal movement itself does nothing (evident when playing flight sims and space sims where the right thumbstick is to roll the craft yet you move it vertically to do so, against what you would expect). Additionally, the two triggers are a single axis in DirectInput mode, so with both released the axis is at 50%, same as them both pressed fully down. This can be a little jarring when they are set up as a throttle/brake.
Recently I moved to using vJoy to take the XInput controls and to remap them to a virtual controller using Universal Joystick Remapper. This gives me a new XInput (virtual) controller where I can set the deadzone and sensitivity and swap the right thumbstick axes so that all of these then operate fine in game. I'm sure the triggers can be split, too, but I've not tried that yet.
So I wouldn't say the issue is due to the game only supporting DirectInput as 360 controllers will operate in a DirectInput mode (although without tweaking I find it quite lacking). There is a known issue with the registry entries, though, which I'm disappointed to say that even though I have sent the full details to GOG Support, there has been no updated version of the installer released.