Not sure where you got the 90-95% fat, but I've never seen anyone suggest that you should be eating anywhere near that much from fat. If you were actually trying to get that high I can understand why you'd feel like it's a "sick person diet". From what I've seen, the traditional advice for 'macros' is that you should be eating 65/30/5 for fat/protein/carbs. However people often misinterpret that to mean that that's a goal for each and if they haven't eaten that much they should force themselves to eat that.
If you're serious about your diet, you should really take 5 minutes and figure out exactly what your body need. Each person is going to be a bit different, but in general (but slightly more specific than the last 'in general') you should be eating less than 20-50g of 'net' carbs, you should eat at least 1-2g/kg of lean body mass, and you should eat as much fat as it takes you to not be hungry. There are calculators that will walk you through all this, http://keto-calculator.ankerl.com/ is one that I've used before, it's more targeted at weight loss, but it's only one that I've found that makes an effort to cite the calculations it does.
As for working out, yes it's definitely possible. I've been lifting since December and making great progress. There are also occasionally stories of endurance athletes that swear by a ketogenic diet. My understanding of why it can be beneficial is that it basically removes your dependence on glycogen, when runners 'hit the wall' it's their body running out of glycogen their body then has to transition to running on fat. Keto-adapted runners are just running on fat from the beginning so they don't hit the wall and are more used to burning fat for energy.
I'm not a runner so I don't have personal experience in any of that, but in my lifting I do find that I have to take it a bit slower than I expect others have to. When you're keto you lose a bit of the 'bursty' power that people with glycogen reserves have.
I don't claim to be an expert on any of this, but I do continue with it. I've been mostly ketogenic since May of 2013, and I've had many improvements in things like mood, hair, skin, and sleep and I definitely notice a change in those things when I decide that the social aspects of eating are more important than my diet.