Figure out what the issue was, I had installed USB Overdrive to enable programmable use of all five buttons on an old Kensington mouse.
I had also noticed that if I rebooted to older OS or even switched to a different user on the Mac Pro the keyboard starting working as expected.
As soon as I disable custom settings for any mouse any application in USB Overdrive, the Model 01 started working as expected.
Problem is that according to USB Overdrive the Model 01 is identified as 2 things both of which are of device type Mouse
For now not sure if its a bug in USB Overdrive or if its a bug in the KeyboardIO firmware, but anyways this was what was causing the keyboard to not function as expected.