OK, I just tried it with PS3 and a Logitech USB keyboard. The Pause/Break key worked, and it didn't matter whether I had that "Enable Direct Chat" option checked or not. (I thought earlier that it might.)

If you don't have a Pause/Break key, check under Keybind window -> Movement tab -> "Face Camera" (at the bottom of the list). It's Pause by default, but you should be able to set it to something else.