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Your problem is common. At least one other person has experienced the same problem, yet his friend's DC works fine in 2 player mode.
If your DC works in 2-player mode on original Dreamcast game discs, your problem is probably an issue with the laser not reading certain data correctly, or your Dreamcast's firmware is slightly different than your friend's machine.
The bottom line is that you'll probably never get it to work in 2 player mode on your machine.
Are the date codes on your machine and your friend's machine different?
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