Scenario 1
In Device Manager, I create Nexus One (or Nexus S) emulator with the default skin. The skin displays hardware buttons, the corresponding layout files have parts/.../buttons/... entries, software buttons are not displayed. But clicking on the hardware buttons does nothing.
Scenario 2
In Device Manager, I create custom emulator with custom skin. Near the skin selection controls, I press the How do I create a custom hardware skin? link. At the bottom of the page there is a link to page 2. I create my custom skin with hardware buttons as described on those two pages. But clicking on the hardware buttons does nothing.
Of course, I can use the buttons on the AVD toolbar, but it's less convenient.