I installed enlightenment window manager to see if that would change anything and it doesn't. However, when I use xev to see keypress events, the keys show correct case. This leads me to believe there is something in the X session in debian perhaps?

The prospect of having a larger resolution enlightenment on the phone is very appealing. I hope this works.

Update

I searched the forums and found a solution. Disabling auto-capitalization in text input corrects the behavior. This is probably something specific to vnc server i suppose.

it is nice to be able to use full screen debian apps on the n900 using easy-debian with vnc as a virtual resolution desktop.It seems to be a clean solution to all the keyboard and focus issues as well.