Hello,
From my understanding of what’s happening, is the game is switching rapidly between gamepad and mouse due to the virtual cursor sending mouse input events.
This discussion post here: How to stop virtual gamepad cursor rapidly swapping between input modes with Common UI?
describes a solution to keeping the cursor visible and controlled by gamepad with accurate input type detection.
If the above does not work for you, the official docs talk about Gamepad Navigation With Synthetic Cursors that also references how to implement/troubleshoot a custom behavior for it. I think the main difference is their custom cursor is derived from UCommonUIActionRouteBase.
Please let me know if the above information works for you!
Regards