The one i have is a Y-Mouse, and it suffers from that problem as well. My cabinet is setup kinda stupid, i have a pc and a dreamcast in it, I use a KVM switch to switch the monitor back and forth, the kvm switch gets its power from the keyboard port on the PC, so that uses up my ps2 port for the x-arcade...it doesnt seem to function properply when i plug the x-arcade into the kvm switch.
The only black keyboard i have for in my cabinet was a usb keyboard, so I plugged it into usb, and the x-arcade through the usb adaptor. when i needed to program my x-aracde, i had a usb to ps2 adaptor on the passthrough port on the x-arcade and i would just plug the usb keyboard in to program it. this worked fine, howerver if i left the keyboard plugged in, it seemed to mess with the controls.
so what i did was connect the x-arcade to teh ps2 port on the pc, and plugged a ps2 keyboard into the x-arcade. i plugged the kvm into the usb to ps2 adaptor so it still has power, so far so good....if i didnt explain this properly, i can include pics.
if you are having problems getting the x-arcade to work via ps2, make sure you have a ps2 keyboard plugged into the passthrough port on the x-arcade.