Mathew--There are small tabs on the dpad, it is possible the one on the bottom has broken off causing a miss alignment with the botton on the board. I would suggest using the repair guide to open it up and see if this is the case. If so you can purchase dpads rather cheaply. Hope this helps.
Erin, I would say it is either the logic board or software. I would try to backup the customers data and wipe it. If you still have issues after factory reset then you know it is likely the logic board. P.S. This may go without being said but make sure the connector is seated well. It can be tricky sometimes.