You should be able to set the touchscreen to reasonable settings with a "debugchumby" script:
echo 165,3835,3947,-3597,0 > /psp/ts_hid_settings
These are the settings for my C1 - they should be close enough to work for you.
If that works, there's a way to restore the "special options" mode from the main mode - you need to set up a dongle just like you're doing a firmware update, insert it into the device, then navigate to the hidden "pi" screen (settings->chumby info->pi), at which point a button should show up on the right side under the "clear cache" button. I *think* you might have to unpack the zip file for this to work.
If the recalibration does not work, then it means something's gone wrong - my guess is that the microSD card is wearing out and the device is having trouble storing the settings. You'd have to open it up and refresh or replace it.
Note also that you should be able to plug in a USB keyboard and get a console on the device, if you're inclined to use the command line to fix stuff.