The symptom is seen best if you run the nds-example "touch_test.nds" from the devkitpro distribution. The keys shows 00002000 in the top right, as if you were holding down the stylus, but in fact no touches are registered. Until an official fix is released by the ezflash coders, the workaround is to use devkitpro's own homebrew menu application. It's GPL code so there's no real conspiracy going on here! In fact it'd be nice to see this menu become the defacto standard in the homebrew world, but it is very rudimentary and only shows a textual listing of the files on your card.
So on to the instructions to get the latest homebrew working. I'll assume that right now you've downloaded and installed all the latest devkitPro stuff and you're sat there wondering why your touch screen controls don't work.
First download the latest EZ Flash DLDI driver from http://www.ezflash.cn/software.htm. You'll have to download the "Kernel 1.90" zip file, extract it and find the Ez5s.dldi file. Now you have to download the Homebrew Menu code. This is only available in the devkitPro Subversion repository.
svn co http://devkitpro.svn.sourceforge.net/viewvc/devkitpro/trunk/projects/nds/HomebrewMenu/
Once that is compiled, you have to patch it with the previously extracted Ez5s.dldi file (if you use a high capacity SD card, use the Ez5sdhc.dldi instead). Do that using the dlditool in $DEVKITARM/bin:
$DEVKITARM/bin/dlditool /path/to/ez5190ob11/moonshell/Ez5s.dldi HomebrewMenu.nds
Now copy that file onto your card, but copy it as the ez5sys.bin file. This means that when the card boots up, it will boot our HomebrewMenu instead of the regular EZ Flash/Moonshell executable.
Hopefully the next release of libnds will fix the issue so that homebrew written with it is compatible with all cartridges out of the box. Even better would be if the Homebrew Menu started to see regular updates and became a really cool and useful file browser.