Thanks for the fast replies! I've read about using a zener diode to siphon off extra voltage from the 12V. Would it be wise to do that so it doesn't get so hot?
Also, I am pretty new to electronics, this is going to be my first project, so I don't know what you mean by make sure I have a common ground? The host device supplies a ground pin, do you mean I should plug that in next to the Vin pin and plug the ps2 controller ground into the GND near the 5V pin?