it sounds like there is a shell application launching wow... or the OS is putting some shell around wow.

you say you tried flipping CHECKing the xp compatibility mode and that didn't work... hmm.

i have heard of locale specific keyboard filters that allow you to type into applications using international (foreign to the US) keyboard sets. i just can't remember where it was set.

look around in the properties of the wow application (right-click/properties on wow.exe)