Ok I've seen to discovered what the problem was.
You need to enable access for assistive devices under Universal Access in the System Preferences panel.
I didn't find this under any documentation. Even on the developers site. Hope this helps.
As far as the program goes. It's beautiful. It does exactly what I wanted.
This app in conjunction with iShowU are the perfect combo.
KeyCastr
displays held keys while taking screenshots
Version: 0.8
Works Perfectly
Feedback Type: Review
Contributed by: mkultra Friday, September 14 2007 @ 01:40 PM PDT
Product Platform: MacOSX
Used Product For: Less than a month
Recommend Product: YES
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