That was a very interesting challenge and I'm happy to say I got a BETA version.
Mega 2560 (only!!) , SD Card reader, PS2 connector and keyboard, TV out and screen = azipM2560.
It's far from being perfect but I got it to work, I even added the logo

in the near future list is to get the page scrolling up to work which won't be that hard since I got some of the logic from the receiver version I coded. probbly by the ned ofthe weekend.
The kb is "acting" strange; I can guess it has to do with the interrupters of both the SD and KB libraries. I'm not that knowledgeable in C, but I like learning new things
Hope you like it
Code attached in rar file
H/W connecting and libraries-
** SD CARD **
CS - D53
DI - D51
CLK - D52
DO - D50
** PS2 mouse **
Data - D2
CLK - D3
You can find information here
http://www.arduino.cc/playground/Main/PS2Keyboard** TV - OUT **
Video - D29
Sync - D11
You can download the library (fonts included) & schematics here:
http://code.google.com/p/arduino-tvout/ONE NOTE: I had to change the "static void inline sp" to "sptvout" since is z-types has an SP void as well. You will need to apply the change to the TVout.h and TVout.cpp (drop me a line if you want the revised version I got).
Wish list for next versions:
* Pages for scroll up/down - in the near future since I got this code ready from the azip-reciver that I build before.
* Show Courser while typing.
* Show sand watch while "thinking" (reading from sd).
* Check kb presence on load (not just init)
* get the Save/Load to work?
* Start menu to allow change of font size (not sure it's doable)
* Start menu to choose game (I-II-III) - again not sure it's doable.
* check KB issues (interrupters?)