I agree it does sound like you need a new touch digitizer. These can be found for relatively cheap ($10-$20) on eBay. The only problem with just replacing the digitizer is that there is a frame that the digitizer sits in/is attached to and that frame has the home button on it. Buying the whole assembly is about $60 on eBay. There is a step-by-step on here that shows you how to replace just the touch digitizer. I have followed this step by step and successfully replaced just the touch digitizer. My only warning is that you need to be really careful not to bend the frame that you'll be removing from the old digitizer. I bent the frame a little and the touch digitizer didn't fit in as well. Good luck I'm sure you can handle it!