I also have to confirm this annoying issue on 8.10, sorry....works fine
on 8.04!

After upgrading to kernel 2.6.27-10-generic there is still no 
horizontal/vertical scrolling working.
Only doing the above mentioned workaround by reloading the psmouse module...

sudo rmmod psmouse 
sudo modprobe psmouse

... does re-activate scrolling.

greetings
reinhard

-- 
[HARDY] touchpad lockup/drag and lost scroll
https://bugs.launchpad.net/bugs/34501
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