The touchscreen is made up of two separate units. There is an actual LCD screen, and on top (attached by a square of double sided adhesive) of it is the touchscreen digitizer. The digitizer is the part that gets beat up from use.
It could be a variety of things. Based on what you said, here are several things you can try in order of likelihood:
1. Try to re-seat the screen and touchscreen assembly, making sure it's securely in the case frame. The colored outline should be pretty nearly flush with the surrounding outer case.
2. Remove and reinsert the touchscreen ribbon cable, being very gentle, the clamp is very easy to break off of board.
3. I'm not sure if you meant you had a screen protector on, but if so remove or replace it.
4. Replace the touchscreen (if you mean the actual touchscreen is beat up, that can very easily be the problem), they are very cheap, and if you replaced the case, you can do this yourself, too. I sell them on eBay:
http://cgi.ebay.com/ws/eBayISAPI.dll...m=110702096649