I remember I had a similar problem with Yume Nikki (another game made with the same engine).
There are 2 solutions.
Connect a gamepad to the PC, open the game and move around the menu a little, then disconnect the gamepad, now use the keyboard keys, Now it should detect the input (if it doesn't work you could just play with the gamepad).
If that doesn't work there is another solution which is "EasyRpg Player" which is an open source replacement for the RTP of rpg maker 2003. Simply download the exe from its official website, put it in the same folder where the space funeral is and run easyrpg, this completely solved the input bug for me.