I think you miss the definition of "controller" in this case: The real N64 knows its input devices only as controllers, but on an emulator, a controller can be a a keyboard, a gamepad, a joystick or even a mouse in some cases.
Make sure that Player 1 controller is marked as 'Plugged in' in Options --> Configure controller Plugin. The emulator is emulating a disconnected controller and the game sees this, giving you a "no controller plugged in" message.