Try the following:
1) Make sure the Keyboard and computer connections are not swapped.
2) Try opening notepad, and press each button and joystick direction and make sure the correct keypress appears in notepad. Note: some buttons may trigger menus, etc.
3) Some keyboards and/or motherboards don't work well with the HotRod. I would try another keyboard.
4) If this still doesn't work, your encoder is bad. Then, I would e-mail support@hanaho.com, or borg@aceisp.net