joyman -- I'm using that very same kernel (2.6.8-2-k7) and am using a USB keyboard (well, it's a PS/2 keyboard plugged into a PS/2-to-USB adapter -- the "Y-mouse" made by P.I. Engineering) and it mostly works great [more on that "mostly" in a minute].
My motherboard is a Tyan, and it's got an Award BIOS. Here are the (possibly) relevant settings:
- Advanced Chipset features
-- OnChip USB [Enabled]
-- USB Keyboard Support [Disabled]
- PnP/PCI Configurations
-- PNP OS Installed [No]
Directly upon booting, if I hit the delete key, I can get into the BIOS to adjust settings, so at that point, the computer knows about my USB keyboard.
Once GRUB comes up, I get no response from hitting any keys (say, if I wanted to tell GRUB to do something besides the default, I couldn't).
Once the kernel loads the relevant USB modules, I've got my keyboard back.
I think I may fiddle with those settings so I can access GRUB if I want -- I just don't want to jinx anything else.