See my page. I-PAC has a limit of something like 14 or 16 simultaneous keypresses in USB mode. Plenty for normal usage.
I have posted before about my tests with a PS/2 to USB converter and they worked, but not well.
I am not sure how the USB-PS/2 Converter would work.
OTOH, I think the USB cable is the special one, so if you wanted to go PS/2, you could likely just get a standard PS/2 M/M cable at the local supply store. (Unless you have an I-PAC VE which is USB only.)
Everyone has their own opinions on USB vs. PS/2 and I will leave it at that for the rest of the world.
For me, I would make the decision based on what I wanted the device to do and what hardware I had available -
In other words -
TEST ONE - Functionality - i.e. if I had a removable (or desktop) panel that I planned to hot-swap in and out, I would go USB. (Even though I currently do this with a PS/2 encoder and that works okay). If the device were permanently installed, I would go PS/2 (given both options), b/c I feel it is a more straightforward and dedicated interface. (In other words - you are emulating a keyboard. The PS/2 keyboard port is pretty universally a keyboard interface.)
TEST TWO - Hardware - Comes down to what you want. If you don't have legacy ports, I wouldn't worry about running the encoder in USB mode. If you need to use a keyboard routinely with your application, and you have a PS/2 one already, it would make sense to run the encoder in USB mode. If you want your USB ports available for other peripherals, it makes sense to use it with PS/2.
And in the end, while an interesting theoretical debate, I think the issue has been blown way out of proportion.
BTW, I currently have one of the least desirable (IMHO) setups - I run a desktop controller, under WinXP, with a PS/2 interface. This means I have to run a PS/2 keyboard and hot-swap the interface (not supported by the PS/2 spec), b/c under XP if the PS/2 keyboard is not present at boot-up, the encoder will not be recognized if it is plugged in later. That said, I don't have any real problems with it.
Real bottom line: If you feel like getting a PS/2 cable and testing, knock yourself out. If you just stay with USB mode, you should be fine also!