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First of all, there is no way (other than skinning) to remove the New button. You can only remove the up-arrow that sits next to it in the application tray.
After the hard reset and before you restore your backup, does the New button behave properly?
I suspect that something is corrupt in the registry but first...
Go to Start>> Settings>>Menus>>New Menu. Try unchecking the items one-by-one and attempt to tap the New button after each. This may help locate the problem. Are there any entries that may be related to the Targus keyboard?
Also I think that PocketInformant can "take-over" some menus/items. Are there any settings in PI that you can change to disable it from using your New menu?
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