It appears Unreal Engine 4.11.1 has a bug when working with DK2s (with Oculus 1.3) that makes the camera behave very unexpectedly.
I found out that UE's camera system was reworked in 4.11, and that broke DK2's out-of-the-box functionality. I really hope Epic fixes this so it works automatically again, but while that doesn't happen there's a relatively simple solution.
I'm posting this at UE's answerhub, as well as in Oculus Forums.
1 - Open your character's blueprint, then go to the "viewport tab", select the camera and uncheck "Lock to HMD"(some people are suggesting to uncheck "use pawn control rotation", but if you do that the "forward direction" when moving will be fixed, no matter where you're looking at, which is very uncomfortable, so keep it checked).
2 - The camera is probably behind de character's capsule, and that is causing the weird rotation. Move it to 0,0 (X,Y), so that it's pivot point (the lens) is exactly in the middle of the capsule.
3 - If your game is a sitting experience, set camera height (Z value) to the desired in-game height. Remember that Z=0 is already the capsule's half height. So if you have a capsule half height of 90 and you set your camera's Z to 0, the camera will be 90 cm from the ground. To make it 1,5 m, for example, set it's Z to 60 (90+60=150). OR 4 - If your game is a standing experience, set camera height to ground level (which will be exactly the negative of the capsule's half height), go to the "event graph" tab and create a "set tracking origin" node, and set it to "floor level". This will read rift's runtime pre-configured floor position (set during initial setup of sensor), so any user will have the camera at his/her correct height.
5 - Buy me a beer if it works for you, as it took me hours to figure this out.
PS: Apparently this only affects DK2s. Maybe that's why artyom17 was unable to reproduce it.
