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I find the Steam controller configuration thing very confusing and convoluted. Multiple controller profiles and even multiple "controllers" listed like Xbox, Generic, etc.
I find if I start the game, turn on the controller, and get Valheim to the start menu where the controller is working...
I can then use Alt-Tab or the Windows key navigate back to Steam. Go to Library, click Valheim, right-click manage, select Controller Layout. I can get the profile the game is using and make changes.
I can't really explain it better. I've gone to the Steam controller configuration thing many times and what I do there doesn't translate to the ACTUAL profile the game is using. I've also had a two games that were "unplayable" because the camera would spin. Digging through this quagmire I find (for some unfathomable reason) the analog stick deadzones are properly calibrated but a drop-down box has them "disabled" by default.
I know that if you use the Steam Overlay there's a way to get to the controller setting without using the Alt-Tab method I mentioned but I don't use the Overlay. I believe Steam Big Picture Mode also changes everything and I don't understand it at all.
Long story, well, long... I suggest you look at the controller configuration WHILE the game is running but paused. It may be it's using a different configuration/profile than you think it is.