I have had the same problem occur twice now. Once before when I installed xorg 6.8.0 and KDE 3.3 on Mandrake 10.1 Community, kernel 2.6.8-1. I never got it properly fixed and ended up formatting / and /usr and reinstalling Mandrake.
Now I have the same problem again. I have been using of xorg 6.7.0 since and had upgraded KDE to 3.4 and my kernel is 2.6.11-1... no problems. I saw xorg 6.8.2 on thac's and I urpmi it and install goes well.
But now again I have the same problem as the original post, I can only use the keyboard in 'failsafe' mode.
When booting normally, X starts and takes a few more seconds to bring up the login/splash screen and draws a horizontal line across the upper part of the screen. I know the keyboard is dead as soon as I see that line.
Unfortunately, some of my USB devices such as key-drives don't work in failsafe mode. I also have to chmod 666 /dev/nvidia* as root before I can use glx... every time I boot.
I reinstalled xorg 6.7 from my Mandrake CDs, but the problem still persists.
Yes I too had tried 'kbd' instead of 'Keyboard', both the first time and now this time, to no avail.
I'm too much of a noob to know the details about failsafe mode, but basically I need to do a 'telinit 3', then I login and startx. The keyboard works then whether it is specified 'kbd' or 'Keyboard', but it does not work with a normal boot.
I don't want to have to format /usr again! Things were running sweet and I did lots of urpmi on /usr and I don't want to do it all over again