Thanks for all your posts. I had this problem, looked at several posts on this and other forums, and people tended to be talking mostly about BootCamp fixes, and driver issues. Links are being posted to places on the forum that weren't quite relevant, or easy to interpret. I use VM Fusion on my OS 10.5 Leopard, in native mode, not through bootcamp. The fix was rather simple, for me. The support staff had me reinstalling everything, deleting code, checking the logs, etc when the problem was so much easier to fix, and I finally had an epiphany that allowed me to fix it. (Some of the solutions in this thread for example didn't work for me or others).

I was running MS Entourage to log into my server for email access. Whether this a VPN Client, Checkpoint, or not, is really irrelevent, and frankly confusing to some readers. I knew what a VPN was, but wasn't certain that my Entourage mail retrieval was configured in a way that the VM would consider to be a VPN, or security issue. It is best to notify people that anything they are using to connect outside their OS to retrieve messages, could be interfering with the VM and therefore causing the mouse/keyboards to not work properly.

I simply shutoff Entourage, or make sure that I wasn't logged in, and the keyboard functionality returned completely. If I go outside the VM Fusion window, log into Entourage, my keyboard stops working in the Vista Guest OS, and the classic Mac OS beep notifies me of an error. As of right now, I don't have a work around, to allow one to be logged into their email client, while the VM Fusion is operating, so it would be nice to have that option.

Thanks again for everyone's help.