Initially when the screen loads, there's no arrow showing my selection. The arrow only shows up when I hit down. Then I tried to select 1P but it moved to VS. Then no matter what I did, I couldn't get it to move or select anything.
Honestly, it seems a game engine issue.
Can confirm nothing happens when you select versus, but honestly, no clue what's the issue, since everything is properly configured.
And yes, you need to press a button for the arrow to appear, is a common thing 2D fighter maker games.