I agree the ipac for an arcade machine is the only way to go. A keyboard hack is just wasting your time until you break down and buy an Ipac. I think if you talk to anyone who has been doing this for any legnth of time they will tell you to buy a keyboard encoder. My Ipac works ten times better than my keyboard hack did.
Sorry, don't agree. Mine worked flawlessly. Was it a pain? Sure, but it was fun at the same time. Was it free? Pretty close. Would I do it again? Probably not, but then again, I don't have to.

But it does require a set of skills that might be beyond some folks, and they should definitely go with a real encoder.
As for the poster's problem, I'm afraid I am at a loss. I have a hard time believing that the speed of the keyboard controller has anything to do with it. Even if the cpu inside is running at a 1mhz, that should still be plenty fast to catch the keystrokes.
Also, ALL keyboards use a matrix of some sort. They have to! Otherwise, the controller chip would have to have about 120 pins! No matrix means a separate pin from the controller leading to each key. This is obviously not what you have here.
If the keyboard isn't slow without all the extra wire, the problem will lie there, unless you have a high resistance short someplace.
RandyT