Hi Firefox
Did you get this sorted as I am having the exact same problem. The sketch you referred to earlier works OK so, I agree, that the hardware is fine.
I have also been able to get the sketch referred to in this post working : http://arduino.cc/forum/index.php/topic,119000.0.html although there is a small error in the sketch were he displays the X axis both times - just change the last print line to display the Y co-ordinate rather than the X co-ordinate again.
My plan now is to review the sketches provided by Henning Karlsen to see if I can identify what the problem is - should be easy because the sketch in the linked post uses the same libraries :~