After little more struggling, I was able to play two player fighting games with MK802IV. As I described, when I attached two gamepads, only one of them was responsive. I had to find a way to control the second player with Wifi.
I tried RemoteDroid but it required a Kernel that is compiled with uinput. Mine didn't have it and I didn't want to downgrade it.
The factory firmware was shipped with an interesting remote controlling software called "RkGameController". It is a server side input system and there was a client app, "RkRemoteControl". It looks like this:
Now I can play the first player with wired XBox360 controller and the second player with my 7inch KindleHdx via Wifi.
I found a Video that demonstrate how RkRemoteControl works:
A tricky part was that I couldn't figure out how to use "Game controller" mode in RkRemoteControl. On client side, I can reposition buttons but I didn't know why I had to reposition buttons on the server side. It turned out that this game controller mode doesn't send key press but it works as touch pad. It remaps touching position data. It still rely on the overlay gamepad feature from FPse.
The re-mapping touchpad screen is very clever but I almost missed it; I am glad I didn't. If the video was verbally explaining what the Chinese was doing, it could be much easier. lol