Yeah, the lights come on as part of the keyboard's self-test -- but it doesn't necessarily mean that the buttons are working

Yeah, tell me about it... I was typing away one morning when text quit showing up on the screen. No CAPS LOCK light, but there was a NUM LOCK light on. Reboots would only light up the NUM LOCK light. So off to Fry's for a new Logitech Internet KB, get home, climb under desk...
"Hmm what's this? KB plug fell out completely just now... Damn it does work when it's plugged in ALL THE WAY!"