The issue has nothing to do with Xbox/controllers, the tab targeting in this game just sucks. Just today I had two pettax directly in front of me, it could have targeted either one, I didn't care which, but instead it targeted a lizard directly behind them that was just barely in range of my assault rifle. I couldn't even see the lizard because of the two pettax in the way.
And the dragon is just a nightmare. It's gotten to the point where I've been avoiding that UQ all together because it's just frustrating.