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If you are pressing the top of your circular d-pad and it is not responding as an up arrow then your phone is defective and you should get a new one.
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I have same problems, but! it's depend on ROM, i have lag and bug with UP in some roms but for e.g. in the rom WM6.5 Ultralite - CE OS 5.2.23001 (Build 23001.5.0.60) - v.710 i have no issue or such problem with hard button UP and OK. but now I'm now running the MikRom from Amikam. and ihave problem with UP button. Try another ROM. mb it's help to you))