Phone touchpad displays bizarre results iPhone

Howdy,
I have a first generation iPhone.
Yesterday, I found that I could not dial any phone number that had a zero.
If I touched the zero on the keypad, the 8 became blue (as if I had touched it) and an 8 was entered on the display as if it were the number I had touched.
No, this is not caused by my being fat fingered. I have been extremely careful in experimenting with all this.
For a while, it seemed that the touchscreen was working properly for all functions but the phone. Then, about an hour ago, I tried to touch Settings-General but when I touch General I am brought to Mail, Contacts, Calendars which is just below General.
I will add that I have restored the phone to the newest version of the software, but now strongly suspect this to be a hardware issue.
The phone is long out of warrantee...
Would it make financial sense to repair it, or should I just replace it?
Many thanks for any thoughts,
A.C.
iPhone iPhone OS 3.1.3