The first working firmware is already working. There is room for improvement, though.

The whole code is available at github but the main components are here:

1. The keyboard is read with a small delay betwenn the changes in I/O direction and the reading

  // Set P1=0, P0,P2 = inputs with pullup
  pinMode(0, INPUT_PULLUP);   // P0
  pinMode(1, OUTPUT);         // P1
  digitalWrite(1, LOW);
  pinMode(2, INPUT_PULLUP);   // P2
  DigiMouse.delay(1);
  if (digitalRead(0) == 0) button_state |= (1 << 2); // Left
  if (digitalRead(2) == 0) button_state |= (1 << 3); // Right

  // Set P1=1, P0=0, P2 = input with pullup
  pinMode(0, OUTPUT);          // P0
  digitalWrite(1, HIGH);       // P1
  digitalWrite(0, LOW);
  // pinMode(2, INPUT_PULLUP); // P2 no change, still input
  DigiMouse.delay(1);
  if (digitalRead(2) == 0) button_state |= (1 << 0); // Up

  // Set P1=1, P2=0, P0 = input with pullup
  pinMode(0, INPUT_PULLUP);    // P0
  //  digitalWrite(1,HIGH);        // P1  no change from last state
  pinMode(2, OUTPUT);    // P2
  digitalWrite(2, LOW);
  DigiMouse.delay(1);
  if (digitalRead(0) == 0) button_state |= (1 << 1); // Down

2. The readings are analyzed to detect changes from the last scan.

  if (button_state != last_scan) {
    last_scan = button_state;
     ....
     ....

  }

3. The (former) useless combinations (UP+DOWN, LEFT+RIGHT) are disregarded and the sensitivity index is advanced or regressed when keys LEFT and RIGHT are held together and the keys UP or DOWN are pressed

    // Eliminate useless sequences: L+R
    if ( (button_state & 0x0c) ==0x0c ) {
       // Do L+R Stuff
       if ( (button_state & 1) && (fib_index < (MAX_FIB_INDEX-1)) ) fib_index++ ;  // Up
       if ( (button_state & 2) && (fib_index > 0                ) ) fib_index--;  // Down
         
      } else {
           if (button_state & 4) DigiMouse.moveX(-fib_step[fib_index]);  // Left
           if (button_state & 8) DigiMouse.moveX( fib_step[fib_index]);  // Right       
     }

    // Eliminate useless sequences: U+D
    if ( (button_state & 0x03) == 0x03 ) {
       // Do U+D Stuff
       fib_index = 0;  // U+R reset fib index
      } else {
        if (button_state & 1) DigiMouse.moveY(-fib_step[fib_index]);  // Up
        if (button_state & 2) DigiMouse.moveY( fib_step[fib_index]);  // Down  
     }

The sensitivity is increased/decreased according to a slice of a fibonacci sequence.

const uint8_t fib_step[MAX_FIB_INDEX]={ 1, 2, 3, 5, 8, 13 };	 

4. Finally a small delay is added as a primitive debouncing method

  DigiMouse.delay(5);

So far that's all folks!!