I had a feeling of deja vu reading this, because someone posted a while back to the local Mac User Group board about the same thing. The woman never answered all our follow-up questions, though, just did whatever the heck she felt like, so I don't know what the resolution was.

Anyway, three very important questions are:

1. Does this iMac respond if you create a new user account and log in to that one?

2. Is the touch plugged directly into one of the iMac's USB ports? If you've only tried through a hub or the keyboard, try going directly in, unplugging something else for this test if necessary.

3. Does this iMac respond to other iPods?