This may not be completely related, but I saw this post: Keyboard configuration. I believe it’s for the older Picade USB PCB (I have this also). But it mentions how multiple Picades can’t be put into keyboard mode and work effectively. I know this is not exactly your situation, but I’m extrapolating into thinking that perhaps the Picade in keyboard mode may be screwing up your USB keyboard.
One thing you could try instead is log into your Pi remotely via SSH and do your configuration that way. Then you won’t have to worry about another device taking over the keyboard. I’ve been doing that as well so that I can keep an eye on my logs while I’m running things on the Pi (e.g. I can run MAME in verbose mode via SSH and see all the debugging lines, while the Pi’s display shows MAME in full screen).
In my other post, you mentioned that you’re able to edit retrogame.cfg and get things working, but after installing drivers, the gamepad doesn’t work anymore. Perhaps what is happening is that the driver installation process is resetting the Picade configuration. Could you post your configuration and the commands you’re using?