any water damage to the phone or physical damage? sounds like the trackball 'click' circuit is shorting with some other circuitry. try to compose a text message and just press the trackball when in text entering mode, see what it does. if it functions like normal, it is some other problem, but if it enters some letters or spaces when doing so, then there's a definite problem with certain circuitry.
either way, if it's under the 1 year warranty and there is no apparent physical/water damage, RIM will honor the warranty and send you a refurbished phone. contact vodafone for their device exchance center or their customer service number for instructions on doing a return through the mail.
AT&T Sales Representative