OK, so... I have two H2O's. The touch loop issue yesterday? I can only reproduce it on one of them.
That's with switching their internal SD cards out so there is no difference in software.
The H2O with the issue is the one I bought with broken display off ebay and performed a display replacement on.
So, uh... stray electrons or something. Infested with nargles.

And fbink makes them wander. I really haven't got the foggiest idea. Weirdest issue ever.
I'll see what I can do for ... working around this freak issue anyway, and handling keycodes as it seems unavoidable.
Sorry for the inconvenience & thanks everyone for your patience.