Hi and welcome to LQ.
Ubuntu 7.04 is VERY outdated and unsupported. Unless you've got a very specific reason why you want something that old, you should install one of the more recent versions, eg. 12.04.
By the way, most probably your keyboard works fine. If a terminal window asks you for a password, it does NOT echo the keystrokes you type. You can't see any ***** or anything similar. Just type your password and press enter.