Yes that setting does exist, and it does work by letting Steam directly take over control of all the extra buttons on the controller… HOWEVER. It does a really bizarre thing where Steam will see multiple instances of the controller, one is the “correct” one, another is a basic Xbox 360 controller, and if you happen to power cycle the controller while Steam is running, then often the controller will not work at all anymore until you shut down Steam, then power cycle the controller again, then start up Steam again. I’ve seen other people reporting even more duplicates in Steam too, potentially based on whether you’ve installed Steam’s extended Xbox controller driver? Not totally sure.

Also, while Steam is open, the controller doesn’t work at all with any games not launched through Steam (game pass games, other launchers, etc.). There are workarounds for this, but still annoying.

It is supported in ReWASD now, but I think that gets fiddly when you have ReWASD and Steam running at the same time; I haven’t really tried a proper setup in ReWASD yet.

Overall, just a very frustrating and inconsistent experience. When it’s working, I really love it, but then there are nights where I spend 3 hours troubleshooting instead of just playing games.