My xfps sniper works with my XIM no problem, but I did not test my ps2 controller with it before I sliced off the cable. I assume a ps2 controller usually works as advertised on the XFPS sniper.
It is possible you have a defective XFPS, but you may want to test more before you go tossing it. Try a different PS2 controller. Perhaps some off brands have issues with the sniper?
When I got my XFPS sniper for christmas and first tried it out, I was REALLY upset. I had paid 100 bucks for something that did not work well enough to be better than using an xbox controller.
The XIM saved the day. It was another investment, but I built it myself and got the parts fairly cheap, and now another 45$ later I am in a much better boat than before. With the XIM, the mouse and keyboard works like they SHOULD have worked with the XFPS Sniper alone. Its frustrating to think I spent 100 bucks on what is now basically a ps2 to Xbox controller adapter, but for a hardcore PC gaming making the move to console, 145 bucks for the xfps + the Xim is worth it in the end.