After reading through 5 pages of solutions that don't work, I figured I would save everyone from scouring the web, since this page is the first hit on Google.
If you are using Parallels to boot a boot camp partition, you need to first boot into Windows and enable auto login. With this, Parallels is unable to install the virtual drivers needed for your keyboard and mouse to work.
You can find instructions on how to do this here:
http://support.microsoft.com/kb/315231
After you have enabled auto login, Windows should boot and install the virtual drivers, then ask you to restart. I was able to use my keyboard at this point, but not my mouse. After a fresh restart, voila, keyboard and mouse works fine. I hope this saves some of you some time.
This is just for boot camp running Windows XP SP2, but try it for others, you may have some luck.
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