1st Gen iPod touch not working correctly?

Question

I have a 1st generation 8GB iPod Touch. It's not working correctly.
My biggest problem is that, unexplaiably, certain areas of the screen don't seem to register touch anymore. There is a sort of "L" shape on the left and bottom edges of the screen that won't register touch, making it impossible to move applications to the previous page on the home screen and making it hard to use the keyboard/buttons while in portrait mode. It's extremely frustrating to try to change the volume while playing a song, as I now have to either put the iPod in sleep mode then double tap the home button or flip it to cover flow and double tap the home button to do it.
http://i38.photobucket.com/albums/e140/Vipershark/IMG_0001.png
(Highlight the image to see it better.)
This is a screenshot of the working/non-working areas that I made using the Whiteboard application. The white area that you see (excluding the little half circles of black which are extended brush strokes and not actually working areas) is the area that doesn't work. I can't seem to figure out why it happened, as I've never dropped or otherwise damaged it. It just happened one day, and I don't know why.
But I can't fix it. I've tried everything. Upgrading (I'm now running iPhone OS 3.0 which still didn't fix the problem.) didn't work, restoring didn't work, deleting everything and restoring from factory settings didn't work.
I'm also having a few other problems as well, though they're not as bad. My home button seems to stop working sometimes and sometimes the entire screen witll stop registering touch until I put the iPod to sleep and turn it back on. It also seems to go a lot slower than usual.
My iPod is less than a year old. Can you help?

Answer 1

Vipershark,
I had a very similar problem this past weekend with my 1G 8GB iPod touch. But with me, just the left side of the screen wasn't registering my touch. I could still access the bottom section, which you cannot.
The good news for me is that I fixed it and I hope it works for you as well. What fixed it for me was resetting all my settings. To do this, go to the settings icon, then click on general, and then on the very bottom is reset. Choose "reset all settings."
Apparently this is different than a restore through iTunes, which you tried. I also tried that earlier and it did not help.
Of course, the reset solution I used relies on you being able to access all of the correct buttons, so I hope you can!
Please let us know if this works for you. If not, since it is less than a year old, it is still under warranty. Contact Apple and see what they can do.