I had the exact same problem as described by the OP, right to his last word. But mine happened because the phone fell from the table.
I tried upgrades and downgrades of OS and even tried the crackberry approach to resurrecting nuked berries. None solved the problem. The FIX
: I took the phone apart and turned the phone on, then disconnected the keypad from the mainboard and the trackpad worked well. It means the problem is with the keypad. When I connected back the keypad I noticed my camera application came up. That means the camera botton must have gotten jammed in the fall. So I pulled out the soldered camera button from the keypad sticker and that solved it. Phone now works as normal but I had to sacrifice my camera button. Not much of a sacrifice to me as I dont even take pictures, I am however used to that button as the shortcut to my BBM
So if you are experiencing same problem, I think there is a key jammed in the keypad. Best way to find out which key is to disconnect and connect the keypad to the mainboard while phone is On. Which ever key is jammed will be depressed on connecting back to the mainboard and you will see the key/letter on your screen. Which ever key you see, that's the culprit
Hope this helps someone out there. I actually bookmarked this page 3 days ago and refreshed every now and then to see if anyone would have come up with a solution. Well, funny how things turned out. P.S
: Remember for the 9650 its 4 screws at the back, 2 screws at the front on top of the screen. Carefull when you are removing that earpiece face so you dont crack your screen or leave dents.
All the best