I have the same problem with text entry that is described in this thread on XDA. It sort of works, but not really. It's only half a solution, as I can't really control the phone properly.
It's such a pity these are all so difficult. The idea is soooo awesome.
I re-rooted my phone, may try AndroidScreencast again, but I prefer wifi over tethered USB.
Note that I had to use RealVNC in order to (a) get a connection and (b) be able to re-size the Droid VNC Server window from HUGE/IMMENSE down to a reasonable size. I couldn't figure out how to do either very well using TightVNC.
Both apps have problems with screen rotation. I put my phone in landscape orientation on my little stand so I can plug it in. VNC and Screencast both show it sideways. :-(