Keyboard and trackpad only work in Option boot menu and recovery

Did you perform a clean install of macOS by first erasing the physical drive?

If so, then it appears you have some type of hardware issue. I have seen some odd keyboard behavior on a couple of our organization's MBPros where the keyboard works perfectly fine until logged into a user account. I have also seen where if the Trackpad isn't connected (or doesn't work) that it will also prevent the Keyboard from working as well even though they have independent connections to the Logic Board. I have also seen macOS refuse to work at all when macOS encounters an unexpected hardware issue. I know it seems like a software issue and it very well may be to some extent, but I think it will require a hardware repair. I forget if our laptops required a new Logic Board or a new Top Case/Keyboard/Trackpad Assembly.

Regardless of the source this issue will require Apple to fix in some manner. It is possible that one of the Service Provider diagnostics will be able to detect a hardware issue.

I've seen some really odd behavior with some recent Apple laptops and macOS over the past year or so including the issue you have described in your post. I agree it would seem to be entirely a software issue (it was my first thought too when I first encountered this issue with our organization's laptops), but I really believe it is a bit of both hardware and software just from what I've personally observed.

I've seen some Apple hardware failures have an unexpected side effect within macOS.

Recovery Mode is not a full blown copy of macOS, but a very minimal version which may not be utilizing or accessing the hardware in the exact same way or to the same extent.

The Apple Diagnostics don't mean much unless it shows a failure. A passing diagnostic does not necessarily mean the hardware is good. The service diagnostics which the Apple Store and AASP's have are a bit more involved and may detect a problem that the consumer level diagnostic cannot, but even the service diagnostics may still not find an issue. If Apple or an AASP replaces the Logic Board or Keyboard/Trackpad it will confirm whether the it is a hardware issue or exclusively a software issue.

If you can find a software "fix", then I would definitely be interested in it. It doesn't hurt to try if you have the time and patience to investigate. Unfortunately I couldn't justify the time necessary to look for the needle in the haystack when replacing a part quickly resolved the problem for us.

I understand your keyboard and trackpad do not work at all, unless you boot macOS Recovery. SMC and NVRAM Resets were justified but didn't fix the problem. Reinstalling macOS was a reasonable next step to follow, but it didn't help either.

Please determine if the same problems occur in "Safe Mode": Use safe mode to isolate issues with your Mac.

kmarch3 wrote:

I did not wipe the drive first but I can try that. When I run diagnostics mode, hardware is ok. As mentioned, trackpad and keyboard work when in recovery and option boot so hardware seems ok.

This also quickly eliminates any file system issues and also any settings or third party software issues.

furthermore, one day I was incredibly irritated and kept hitting SMC reset (must have done it 20 times) and eventually I got mouse and trackpad to work in login window but once logged in, it stopped.

This tends to say it is a hardware issue or at least hardware is contributing to the problem.

ive been doing research on plist files in system folder and it may be that some files are not being created properly specifically ones related to trackpad and keyboard.

I personally believe the issue is hardware related as well as poor macOS software behavior. I do hope you can find a software solution and I would be very interested in it as well.