|Since when did it stop working, or behaving like this?|
I have had similar problem too on my Win XP. Do you have by any chance KeyScrambler on your PC? I had it, and I suspect the problem somehow was with it.
To type password, you can try putting in the ascii codes for the keys. Once you are in, then you can disable the password, and then look for a reason that might have caused such a thing.
You can find the ascii codes for the keys here :
Good luck :) ..