So turns out this is an xorg issue, at least for me. 
First, pressing Alt-Ctrl-F1 worked.
Second, seems that some of the xorg use of the mouse and keyboard changed. Im 
no expert but if I get it right, your xorg.conf should not define mouse and 
keyboard any more. The nvidia-xconfigure isn't updated for this and so if you 
run it, you get into the kind of trouble we're getting. Im not 100% sure but I 
think the X-server recovery program (when booting into recovery mode) also 
generates a file that is at odds with the change. 
I removed all reference to mouse and keyboard from xorg.conf (including in the 
layout) - system is working but I can't say it won't freeze.

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keyboard drops working in intrepid
https://bugs.launchpad.net/bugs/294791
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