Also happens on Fedora 42, with the standard German layout - being unable to type Umlauts, etc.

System Info, if it matters:
OS: Fedora Linux 42 (KDE Plasma Desktop Edition) x86_64
Kernel: Linux 6.16.7-200.fc42.x86_64
Packages: 3177 (rpm), 24 (flatpak)
DE: KDE Plasma 6.4.5
WM: KWin (Wayland)
CPU: AMD Ryzen 7 9800X3D (16) @ 5.27 GHz
GPU 1: NVIDIA GeForce RTX 3070 Ti [Discrete]
GPU 2: AMD Radeon Graphics [Integrated]
Memory: 30.45 GiB
Disk: 929.93 GiB
Locale: en_US.UTF-8

Steam Beta Branch: Stable Client
Steam Version: 1757650573
Steam Client Build Date: Fri, Sep 12 05:55 UTC -08:00
Steam Web Build Date: Fri, Sep 12 01:47 UTC -08:00
Steam API Version: SteamClient022

@Wolfen113 @j-stechmann Hey there!

Could you please have a try to downgrade libxkbcommon to 1.11.0? I found it breaks Steam Input after upgrade.
Hope it work.

@Wolfen113 @j-stechmann Hey there!

Could you please have a try to downgrade libxkbcommon to 1.11.0? I found it breaks Steam Input after upgrade. Hope it work.

I tried rolling back the library to 1.11.0. Unfortunately, I couldn't check if Steam worked because my entire Cinnamon environment broke on the old library.

Oh, you may also downgrade libxkbcommon-x11 as well. Sorry for my oversight.

If it doesn't work, you may try to use LD_PRELOAD to let Steam use the older library separately.

The most up-to-date release of libxkbcommon at the time of my comment was 1.10.0, so I don't know if that's the issue.

I'm now on arch with libxkbcommon 1.13.1-1 and the issue appears to be fixed - but obviously there are lots and lots of differences between when I reported this on fedora 42 and my current arch setup.

still an issue, on fedora too ;/

I can reproduce a very similar issue with the Faroese keyboard layout on Fedora KDE Wayland.

System:

Fedora 45 Rawhide
KDE Plasma 6.7.x / Wayland
Steam Flatpak (com.valvesoftware.Steam)
libxkbcommon 1.13.1
Faroese XKB layout (fo)

Behavior in Steam Overlay:

ASCII letters/numbers work
Control/navigation keys work: Backspace, Delete, Enter, Tab, arrows
Ctrl shortcuts work: Ctrl+A/C/X/V/Z
Pasting non-ASCII text works
Faroese-specific characters cannot be typed directly

Affected Faroese characters include:

á ð í ó ú ý æ ø
Á Ð Í Ó Ú Ý Æ Ø

For the acute vowels, the dead-key composition is lost and only the base letter appears. For direct non-ASCII keys such as ð, æ, and ø, no character is produced.

A few things I tested while narrowing this down:

The Faroese layout works correctly outside Steam Overlay in Konsole, KWrite, browsers etc.
The issue occurs in multiple Overlay text fields: chat, Notes, browser/search fields.
It reproduces with both Flatpak Steam and the RPM Fusion native Steam package.
Switching a game between fullscreen and windowed does not change it.
Forcing XWayland's visible layout from us to fo with setxkbmap -layout fo does not fix it.
Running Steam with XMODIFIERS=@im=none or with GTK_IM_MODULE=xim QT_IM_MODULE=xim XMODIFIERS=@im=none does not restore Faroese characters.
Steam Beta currently behaves the same.

I also found a separate local issue during testing: I had stale environment variables forcing IBus (GTK_IM_MODULE=ibus, QT_IM_MODULE=ibus, XMODIFIERS=@im=ibus) even though no IBus daemon was running. That caused printable keyboard input to fail completely in the Overlay for some games. Removing that stale configuration fixed ordinary ASCII typing, but the Faroese/non-ASCII issue described above remains unchanged.

Current session has no GTK_IM_MODULE, QT_IM_MODULE, or XMODIFIERS override set, and Faroese input works normally everywhere except Steam Overlay.

So this appears consistent with the issue described here: Steam Overlay is receiving ordinary key events correctly, but non-ASCII/XKB text input is not being converted/committed correctly.