My Macbook Pro started to experience the very same erratic behaviour. At first I noticed that it would happen if the MBP was on a flat tabletop surface. If I placed the MBP on my lap, the magic pad seemed to operate properly. It was very consistent. Since this is a capacitative surface, I tried an experiment. I placed the MBP on a tabletop surface where it's exhibited the malfunction. Then I used my other hand on the flat surface areas near the magic pad while using my right hand to manipulate the cursor. It appears that touching the casing with my other hand seemed to calm down the erratic behaviour. When I used only one hand, the erratic behaviour returned.
I'd searched several forums to no avail. No one seemed to have a solution or an explanation so I just lived with it.
However, by coincidence, I was experiencing what I believed was an unrelated issue. One of my USB ports was no longer responding to devices plugged into that port. While searching for a solution for the USB port, I stumbled across a post where the user suggested resetting the SMC. I'd never heard of that before this post. In his post, he mentioned that erratic Magic Pad behaviour could also be caused by the SMC.
He instructed to
1. Attach the MagSafe power cord
2. Power off the MacBook Pro
3. Press the L-Shift/Control/Option and Power button at the same time and hold.
4. Release them all at the same time
5. Then power on the MacBook Pro
Not only did my USB regain functionality, but it appears to have resolved my erratic Magic Pad behaviour. It now operates as it had done when new.
For reference, I'm using a MacBook Pro 13" with the Intel I3 processor and Lion.
I hope that helps somebody else as it did for me.