apparently a lot of these controllers have been having issues with the fret buttons randomly failing. this is due to the detachable neck, and the fact that it has some wiggle room.
there are two ways to fix this. a 'high-fi' fix which involves a torx screwdriver and some wiggling of the connector:
Faulty Guitar Hero 3 Guitar? - Scenyx Entertainment Community
and a low-fi fix which simply involves rubber bands and an M3 clip:
GH III: Les Paul Low-Tech Neck Fix - GrownUpGamers.com Forums
it's BS that we should have to fix it, they should have made it work right in the first place. but if you're like me and your guitar worked perfectly fine until AFTER the return-by date expired, and are left with no choice but to do it yourself, these methods should spare you some heart-ache.