I've played bass for 4 years a lot more in the past year, I've had a guitar this whole time too, but when playing with people I mostly played bass. My problem is that I can't figure out covers. When I played with people, I wrote songs, and learned what they played, and we learned covers, I would watch the guitarist and learn from that really quick and could relate it to guitar as well. Now I'm playing with a friend whose learning drums and guitar, and he wants to do all these covers, with me on guitar, but I can't figure them out, I look at the tabs, I listen to the song, and I can't get anything to sound right, then I get frustrated, but I can write songs, that I perceive to be at least as difficult as any of the covers we've chosen.

Granted, I have a long way to go with chording, and melody work with theory, but even a power chord based song confuses me, unless someone else is playing it in front of me and I'm on the spot, I can't figure it out
I don't unless it's the only option, maybe I need to try harder, it's just funny cause I'll try and just can't figure it out, I've even been playing around myself and accidentally "discovered" a song, I did this with the Black Keys you're touch, and Pink Floyd's Interstellar overdrive and some others
Well, even guys who get paid to do transcriptions get them wrong every now and again (just read the reviews on Amazon of many of the tab books, for example). There are also instances where well known musicians confess that they can't really play anyone's stuff other than their own. So as long as you can write and play all your own stuff competently you can still make a good go of it. So don't get discouraged.
^ ok, cause I know it's not the tabs fault, even if it's not the correct notes, I can usually hear pretty quick if its off, for me it's getting the write timing and picking/strumming right, it's always wrong or off, I can't get into their groove
Hm, this seems a bit weird to be honest!

If you get the timing etc. wrong, I suggest you listen to the song a lot until you know the guitarparts by heart and can sing/whistle what you're supposed to play, that way you just need reference as to where those things are supposed to be played on the guitar.

Other than that, you could try getting Guitar Pro, Tux Guitar or some of that software used for reading Power tabs etc., they're a good way of learning the songs, and you can playback the tab at 25% or 50% speed etc.
Did you try to transcribe the music yourself? Do you not listen to a tiny section then play it? Do you pause the song when you attempt to play it? you should.

Even if your using the tabs You should listen pause play over and over. Dont listen to too much of the song at once. maybe one bar at a time, Or less.
One problem I've had with tabs, even rather good ones, is sometimes the transcriber will combine guitar parts, and this will affect the way the song sounds. Also, another reason songs usually sound "wrong" when I play them is that I'm using the wrong amp settings/equipment/whatever and the tone is off. Other than that...
It would probably be better if you just figure out the songs yourself, most tabs are just wrong. If you use your ear you should be able to either correct the incorrect tabs, or write the correct ones. In cover bands when I'm given a new song (or join a completely new one) I listen to the song and just figure them out myself. That way I learn it, as well as having the correct part.
And no, Guitar Hero will not help. Even on expert. Really.