Restart your computer first to fix a locked keyboard; it often solves many problems quickly. Check and clean your keyboard's connections to ensure they are not causing it to lock. Try turning off ...

Which I've tried, to no avail.<BR><BR>I then took my computer to a friends house with a USB keyboard.

Apple has updated its Platform Security Guide, providing more information about how the Unlock with Apple Watch feature in iOS 14.5 and Touch ID on the iMac Magic Keyboard works.