In this cap if you move (A and D) the player starts flying upwards. http://www.mediafire.com/?3ilxafyx3me
That is strange.
Try using Add Force instead of Set Velocity.
You can limit it by using System->Compare->Player_Phys->Physics->Get Velocity X Component and Get Velocity Y Component so you're not constantly adding force.
Yikes! Beats me right now, the code for that part is a direct wrapper to the physics engine. It might be a rounding error. The worrying thing is the same thing happened when I swapped Set Velocity for Set Force <img src="{SMILIES_PATH}/icon_sad.gif" alt=":(" title="Sad" />
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Found anything?