Hehe, I didn't know Y/N will work. I've used up/down arrows and enter just like as you said. But I have very old MP 1.3I can press Y or N. but normal I could use arows up and down and then select with enter.
If I'm not mistaken you're using Titan skin and dialog appearing there is dialogYesNo.
So skin file used there should be located in C:\ProgramData\Team MediaPortal\MediaPortal\skin\Titan\dialogYesNo.xml
What about your skin file was corrupted? Could you post your file to let me compare them.
And again it's just my guess.
Also sometimes to fix skin/fonts problems it's useful to delete skin cache located here C:\ProgramData\Team MediaPortal\MediaPortal\Cache to let MP recreate it