I have never been able to find out what software is causing this problem. Rumors abound about it being some Microsoft driver causing the problem, but I cannot confirm it, or anything else as I canont duplicate the issue no matter what I try.
The key scan code is being trapped and not being sent to the game, and that is why it will no longer function. You can map the command to another key/button and it will work just fine. You just cannot use the 'tilde' key for anything in the game, except text as text.