Just to close this question -
Just to clarify. With the 1st Gen iTouch the "bounce-back" is caused by a sticker on the logicboard that has a dome button inside of it. I'm not sure where to find this part. I did want to mention this so someone with a similar problem did not try to fix by purchasing a new home button or front panel assembly. After time, the adhesive does weaken on this sticker, so use caution when removing the logic board so this sticker does not go the way of many socks that pass through my dryer :-)