Got mine working for now. The following is what I did.
1. Disable all additional input languages currently active.
2. Restart Mac.
3. System Preference -> Language & Text -> Input Sources -> Check the box "Chinese - Simplified" to enable the Simplified Chinese input method. Make sure Trackpad Handwriting is checked as well.
4. Use the Simplified Chinese Trackpad Handwriting method to write something on Safari
5. Control + Shift + Space to disable the trackpad handwriting.
6. System Preference -> Language & Text -> Input Sources -> Uncheck Trackpad Handwriting from Chinese - Simplified.
7. Check the "Chinese - Traditional" box. Make sure the Trackpad Handwriting of Traditional Chinese box is checked as well. If its enabled properly you should see the "Show / Hide Trackpad Handwriting" from the Input Source Shortcut list on the right side of the panel.
8. Disable Simplified Chinese by unchecking the checkbox.
中文手寫 is currently working like normal for me. Apple should find a way to have this fixed perminantly, this is definitely one bug in OSX Lion~!!
Hope it helps~!!