We did - I remember playing Doom with my friend as a kid - one of us would do the walking, another would do the shooting, on different peripherals. The idea is pretty fresh on the consoles, however.
That reminds me that when USB came out (or came to our, my parents' computer) I thought if only we got a new mouse, I'd be able to plug both in, getting two cursors, and be able to cheat at solitaire. Heh.