You can both use a mouse (you do need the enable dual mouse though) I would never recommend using a keyboard for a light gun game (unless it's typing of the dead) by the time you get the cross hair to move to the pos the event has long gone, even if you speed it up, it's just too hard to control
You could use an analog stick controller though yeah for sure (digital controller nope it would suck too much), the setup would be exactly the same as the mouse setup but for player 2
EDIT:- that's enable multimouse to use 2 mice or mouses if you like lol