I just made a small program which replicates my problem
(no matter how many times i press ESC or INS the loop never exits).but same piece of code works fine on my colleague's machine.
LOCAL llCancel ,ncnt
llCancel =.f.
SET ESCAPE ON
ON ESCAPE llCancel =.T.
ON KEY LABEL INS llCancel =.T.
ncnt=0

* infinite loop through
DO WHILE !llCancel
ncnt = ncnt +1

WAIT WINDOW NOWAIT "count value "+TRANSFORM(ncnt)
DO WHILE !llCancel
WAIT WINDOW NOWAIT "inside loop pal "+TRANSFORM(SECONDS())
IF llCancel && this is never .T. :-(
EXIT
ENDIF
ENDDO
IF llCancel OR ncnt >1000
EXIT
ENDIF
ENDDO