I have 3 Microsoft keyboards, going back to my G4 MDD. Usually plugged into an Apple Display, but on some occassions I've had to plug it directly into front USB port (or rear, front is accessible).
The one thing that I would do, is not just "zap PRAM" from cold boot, but boot into the Open Firmware screen and RESET-NVRAM, and see if that helps. Force the device ID list to be rebuilt, and does a more complete job than zapping can.
There have been a lot of major problems with Apple USB hub type support. I too was troubleshooting an issue and got the "run around."
The only time I've seen where someone could not boot from a DVD/CD was when the hard drive in the system directory was severely corrupt - OS X looks to find any and all bootable devices even when you boot from CD or another drive. And a damaged journaling file is even harder to fix usually.
Outside of the G4 PCI model (1999, early '00) a G4 can boot from Firewire, any problem I'd guess was a defective FW port; some FW cases themselves.
I never really use DW CD. Always always clone your system; create an Emergency boot drive to work from - and used only in emergency so you know it works and isn't just a backup. And, of course, a backup of your working system.
USB cables can flake out. Even new. The USB extension cable Apple includes being one such that has been known to be the culprit. So doubt and verify any cables and devices.
One G5 owner has a LaCie drive not even connected, but the FW cable was, hanging out the back, and would cause:
slow boot sometimes; kernel panic other times; pull the cable, life is back to normal again. FW cables and devices (not sure if LaCie has the market cornered or not) that "wipe out" FW ports, cause shorts, should be avoided (maybe banned).
I've used an MS keyboard for about 4 yrs on my G4, still running 10.4.11. Ever since my Apple split ergonomic keyboard died, and I've got 4 Apple Pro keyboards sitting around (I can palm a basketball but don't like typing on small keyboards). Currently use MS 3000 and 4000 keyboards.
There are lots of reports of Leopard where the system is not responding, but the mouse able to move, but no interaction - can't launch anything or even bring up the Force Quit dialogue. The system being totally non-responsive, and people force shutdown, with high potential of leaving the directory in disrepair.
Mac OS 10.2.5 was suppose to fix and solve USB hub problem. That updated lasted less than two weeks. USB issues have been around, as have Firewire problems. Even Windows Vista can loose track of and get confused by unplugging/replugging devices multiple times that it looses the device ID.
