Hate to bring a dead thread to life, but this sounds like exactly what my phone did. I am having Verizon replace it today. I google'd and google'd to find information on this issue and couldn't find any. That is why I figured I would post this and an image of my phone so people having similar problems know just to send the phone back. The multi-colored rectangle in the middle is the bad area, it happened all of a sudden too. I also experienced poor touch performance in this area.
