I also run Photokey on my Macbook Pro running Snow Leopard, but I have not been able to replicate your issue.
Though they seem obvious, one of basic troubleshooting steps below may fix your issue.
- Restart your computer
- Repairing permissions (click here for more info)
- Reinstalling PhotoKey
If none of that works, it may be helpful to take a short video of what exactly happens when you go to type text. In Quicktime X, just go to File>New Screen Recording, and use Imageshack or YouTube to host the resulting video online.