Your digitizer is most likly bad, you can pick em up real cheap on ebay.
I had 2 of them go bad on Vogues.
Im pretty sure it plugs in with a ribbon style connector, iv heard of them coming unhooked and the connection getting bad.
If your screens still clear then its still good.
Heres a good tutorial on how to disassamble it-->
http://www.pdacenter.ru/razborka/razbor_htc_touch/