Eraser on a pencil will certainly not work. It think there are recipes on the web to make your own capacitive stylus, but I haven't looked at them so I don't know how difficult that is. I use a Wacom Bamboo myself, a bit expensive but very good. There are a lot of different models of stylus available, including some fancy ones, for example brush styluses. There's even a pressure-sensitive one on the way, but I don't think it's available yet.
http://adonit.net/product/jot-touch/