since you can type at the boot prompt, the hardware is likely ok.
I have however once had a ps2 kb with a usb adapter stop responding at the boot prompt after one keypress; this happened only with Knoppix v5.

you could try typing at boot prompts
knoppix 2
reboot
knoppix 3
reboot
knoppix 4
reboot

to give more info on when Kb quits. If it does NOT quit,
then Xorg may be to blame (it is new in Knoppix v5)
so far Knoppix v5 has had more problems than Knoppix_v4.0.2_(whatever).iso
I think v5 has a newer version of the kernel. (2.6.17)
you could try the v4 iso, BUT it tends to lock up on my dual CPU (Xeon)
under heavy disk I/O load