You have to hold the mode button for a good 10-20 seconds when you turn the console on when playing King Of The Monsters with a 6 button controller or else the controller won't work. As others have said, certain games weren't compatible with 6 button controllers and holding the mode button when turning the console on disabled the X Y and Z buttons.
This is interesting, I just got my 6 buttoned controller through the post and had no clue what mode did. Now I know! When you lot are saying to hold it when booting the system, what the heck does that do!? :S
I cant even remember what games you need to hold mode on...I think maybe MK1 was one. I don't know exactly how it works, I assume it maps the buttons out correctly somehow, else otherwise they go all screwy and XYZ just don't work. :T I'm curious to find out, since you're essentially teaching the MD to use 3 new buttons I guess.
Holding MODE on pad power-up causes it to emulate a 3-pad, for games that read the pads correctly enough to work with a 3-pad, but that trip up on the 6-pad standard.