Recently my PC has been acting up while I'm playing with a wired xbox 360 controller. After a few minutes playing FPS drops dramatically while I'm using the controller, but when I move the mouse it goes back to normal. I tried playing with the power options, device manager power management, scanning for malware and nothing. It happens when I watch videos too. Any input will be much appreciated.

Start with the obvious - check to make sure the internal components are dust free and check your temps with hardware monitor. If everything is in order there, check for an updated video card driver.

The fact that the controller is causing harm confuses me. Are you playing on a laptop or netbook? If its battery is dying then there might not be enough power comming from your USB output.

How long has it been since you formatted your hard drive and reinstalled a clean version of your OS (both Windows and Mac's need this done at least once a year)?

You sure you do not have malware? What did you use? I try TDSSkiller, then both Malwarebytes and Kaspersky Virus Removal Tool because no one app is effective enough. This problem sounds more like a virus problem than anything else.

Try going into your devices tab and delete your driver for the controller, then restart your OS and let the driver install again.

since it goes back to normal if you hit the mouse, i'd guess its power-save/sleep related.

Could be a power state thing, there are also bugs out there where poll rates of certain devices over USB can impact game performance (1000hz polling on a mouse for instance break Crysis on nvidia sli setups). This isn't going to be down to any sort of infection.