Today, my Touch updated to 2.3.1. Therefore, I have now a first hand experience of the new dictionary engine for Japanese. It is still not possible to edit the searched for term. The effect of this is that if you point at an inflected word chances are high that you will not get the wished for dictionary entry, and there is no way to modify the ending to the dictionary form. I therefore still prefer the custom Japanese-English dictionary provided here
The same bug is also still present in the French definition dictionary.