I know what you mean. It is amazing that setting the input method in Settings doesn't seem to do anything. This is a bug that has been with WM for a while. Anyhow, check this link. I haven't gotten around to it but I think it's what you want.
http://forum.xda-developers.com/show...ight=sipchange
BTW, what you are talking about is SIP (soft input panel), keyboard is just so 20th century
AND BTW2: PPCGEEKS -- SIP is a very definitive term, but I had to google it because you seem to think a search term must be 4 characters. I understand you don't want people searching for "the" but your solution isn't really too practical.