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Pyth - 31 bytes

The new key thing cost me too much.

ss.emr!FZk@@QsedthdfndeTrb8cz\#

Test Suite.

JavaScript, 105 99 bytes

f=
(s,a)=>s.replace(/#| ?((.)\2*)/g,(m,n,d)=>d?(l=a[d][n.length-1],x?l:l.toUpperCase()):(x=!x,''),x=1)

a=['  ','.,!','abc','def','ghi','jkl','mno','pqrs','tuv','wxyz']

F=s=>console.log( f(s,a) )
F('#4440555#666888330#999#66688111')
F('#6#33777 7779990#222#4477744477778627777111');
F('#44#27 79990#66#3390#999#332777111');

• 6 bytes off thanks @Neil.

Perl 6,  119  97 bytes

map based solution 119 bytes

->$_,\a{my$u=0;[~] map {/'#'/??{$u+^=1;|()}()!!(&lc,&uc)[$u](a[.substr(0,1)].substr(.chars-1,1))},.comb(/(\d)$0*|'#'/)}

Try it

substitution based solution 97 bytes

->$_,\a{my$u=0;S:g/(\d)$0*|./{$0??(&lc,&uc)[$u](a[$0].substr($/.chars-1,1))!!($u+^=$/eq'#')x 0}/}

Try it

Expanded:

->     # pointy block lambda

  $_,  # input string
  \a   # helper array

{

  my $u = 0;

  S                        # substitute (implicit against ｢$_｣)
  :global
  /

    | (\d) $0*             # digit followed by same digit
    | .                    # everything else

  /{

    $0                     # is ｢$0｣ set (digit)


    ??                     # if so then
        (&lc,&uc)[$u](     # call either ｢lc｣ or ｢uc｣

          a[$0]            # get the value from the input array
          .substr(         # select the correct character
            $/.chars - 1,
            1
          )

        )


    !!
        (
          $u +^= $/ eq '#' # numeric xor $u if ｢#｣ was matched
        ) x 0              # string repeated zero times (empty string)

  }/
}