Frustrating screen/touch issue with iPod Touch

My daughter has had her iPod touch of 54 weeks. Last week it had a problem that when you turned it on the touchscreen did not always recognize the touches and scrolling was impossible. We managed to get her synced onto our old computer and updated her iOS and that seemed to solve the problem. Tonight it is back. Looking at the device more closely now I see that when I touch the screen the "button" I touch gets outlined in a shadowline and once it is outlined I can "double click" it to get it to activate, but still scrolling is impossible (or I just have not found the right part of the screen to "activate" the scrolling button). In researching other touchscreen problems I have soft restarted it, hard restarted it and even put it into recovery mode and recovered it that way (which was unfortunate as all her apps were not synced on the new computer and she will be a very displeased 11 year old with old dad tomorrow morning...). This problem still persists.

Has anyone else had this problem or have any ketwords to help me search the issue, nothing I have found sems to fit this issue...