This ended up not working out well for me. Moving the Prefs folder to the desktop was easy enough, but once I logged out and back in I've had some serious issues.
For one, the problem isn't fixed. Even though a brand new prefs folder was created, the trackpad was still ignored after a logout and a restart, but just for my user account. The test account I created still does not display the issue.
Second, the system would not allow me to replace the prefs folder again - it asked me to login, I did, and then it copied all the prefs back in to the User/Libray/Prefs folder like it should. Upon logout and restart, then login, none of the prefs seem to be working. My desktop is trashed, files everywhere. The dock prefs are also messed up. Mail lost all my mail accounts and can't find them. Adobe CS3 has asked me to "Reinstall from the CD". etc etc etc
I do NOT recommend anyone to remove your Prefs folder for any reason.
I finally gave up and had to login as 'root', manually delete the /User/Libray/Prefs folder, then resinstall it from a copy I had (wisely) made just in case. This fixed SOME issues, but not all. The permissions on the Prefs folder is now wrong and even though I am logged in as a Sys Admin under my user account, OS X still says I do not have permissions to change my own Prefs Folder.
I can get that sorted out. Back to the trackpad issue; What we know so far:
1. A new user account enables the use of the trackpad and mouse at the same time.
2. The issue is not in a preference file in /User/Library/Preferences
3. Moving the Prefs folder is a very dangerous operation while logged in.
Any new ideas??