Back in October 2012, I designed a simple keyboard decoder prototype which was very limited. This updated scene now allows you to type capital letters, lower-case letters, numbers 0 through 9, and a few punctuation marks (period, comma, space, and question mark). You can also use the Backspace to delete the last typed characters, and now there is no limit to the number of deletions. The Ctrl key erases all text from the display. Currently, the maximum number of characters you can type is 150, but you can increase that to any length you want by increasing the size of scene.my.textarray.
If you use this in your own scene, please credit me. Thanks!
By the way, the scene responds fairly slowly, so you'll need to type slowly. Too fast, and it will skip characters.
UPDATE June 05, 2016: In the earlier version, I forced Algodoo to run constantly, which is not a good thing to do, but it was the only way that I was able to use the Spacebar for entering space characters in the text. In this update, I made the Home key start (Run) Algodoo, and the End key will stop it. This way you can still use the Spacebar for entering text, but you now can control Algodoo!
This new version also has a blinking cursor!
More instructions and notes are in the scene.