Hmm.  I've using XFree86-3.1 since Sunday with nary a problem.  Are you trying
to start xdm on boot?  I tried that under XFree86 2.1.1 and got the keyboard
locking problem.  Starting up xdm from te console with the -nodaemon worked
like a charm with 2.1.1 and 3.1  The install docs for XFree86 3.1 talk about
disabling the console getty on ttyv0, which I have a feeling was my problem.
Did you have to disable the console getty and start it on an unused vt ( I'm
assuming you are using pcvt )?  

Thanks for any info,
--Brian