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I have the 98 XLE with the factory alarm and remote that comes standard on that model. I have noticed the same thing. Sometimes it will work as far as 25 feet away. Some other times it's a couple of feet like you say. This varies just like radio waves and cell phones signals depending on what other signals are nearby. There is a Toyota dealer about 1-1/2 miles form my house. About 1 block away from them, as the crow flies, there is a radio station's tower. My remote won't work at all in their parking lot. The techs there have told me that when they have to program a new remote for a customer, they have to close all the doors in the building and put the remote right next to the car to get it to program. They are not fond of this when it's Summer time and in the 90's.
In answer to your other question about the key, yes the key deactivates the alarm.
Mike
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