I was having this problem for the past few days and finally went to Google to
find out how to fix this problem.  I followed the following instructions and I
was able to resolve this problem (just thought I would share this with
everyone just as an FYI...)

Had this same problem. I could not get the above to work, however, I did find
a solution.

    Shut down Virtual PC after shutting down any running virtual machines.

    Open Windows Explorer.

    Type %AppData% in the address bar and press Enter.

    Navigate to the path Roaming\Microsoft\Virtual PC under the %AppData%
folder.

    Locate the file Options.xml in the above folder and delete it.

    Restart Virtual PC and the misbehaving virtual machine and note that the
Escape, Tab and other keys are now working.

NB: The issue will occasionally reappear requiring the above process to be
repeated. Needless to say, that is irritating.

--- BBBS/2 v4.10 Dada-1
 * Origin: Wolfe's OS/2 BBS * Memphis, TN * os2.winserver.us (1:116/18.901)