iPod Touch, bottom and side of touch screen are dead to touch..!

My daughters I Pod touch has a problem with the touch screen, I have restarted the device and went throught  the reset procedure yet the screen is still

dead down the right hand side and the bottom.   For example if I open the calculator the bottom row and right side row of icons are dead, all the other buttons tap ok.. Is it a Hardware problem...she can't select the music icon at the bottom and does not really want to restore the device as all songs will be lost..

I have read restoring does not always work for this problem..any suggestions how to fix ?     

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my iPod doesn't have a software update bottom. How do I now get updates?

I'm trying to update my son's ipod to something newer software version than 4.2.1.  I've tried to follow directions I saw on youtube.  When I went to itunes it had me update my itunes to the latest itunes version but it still didn't let me update the ipod.  I'm supposed to see on his ipod a setting that says "sofware updates" and it's totally missing from his ipod.  It lists "about, network, bluetooth, location services".  No "software updates". I even tried changing default settings. HELP

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