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Same problem here unfortunately, I was mid game too, same as drelbs, it let me finish the level and then prompted me to upgrade.
Only picked this up today but havent seen any touch problems so far on iPhone 3G, OS3.0. I have seen one or two enemies stuck in the air but only...
Cant believe the price! An instant buy, downloading now :)
Just remembered I have twitter account but havent used it, ill start doing now!
Feel free to add me to the list http://twitter.com/edgeRed :)