DFT schemes based on conventional and less conventional exchange-correlation (XC) functionals have been employed to determine the polarizability and second hyperpolarizability of pi-conjugated polyacetylene chains. These functionals fail in one or more of several ways: (i) the correlation correction to alpha is either much too small or in the wrong direction, leading to an overestimate; (ii) gamma is significantly overestimated; (iii) the chain length dependence is excessively large, particularly for gamma and for the more alternant system; and (iv) the bond length alternation effects on gamma are either underestimated or qualitatively incorrect. The poor results with the asymptotically correct van Leeuwen-Baerends XC potential show that the overestimations are not related to the asymptotic behavior of the potential. These failures are described in terms of the separate effects of the exchange and the correlation parts of the XC functionals. They are related to the short-sightedness of the XC potentials which are relatively insensitive to the polarization charge induced by the external electric field at the chain ends.