I have had problems with my DSC-S40 for more than a year. I had been able to fix it by hitting it on the logo but that was not working all of the time.
I took it apart as you described and now the screen is working fine but it will only take video now. It will not switch back to only photos. I have tried sliding the selector back and forth, took it apart again thinking that I forgot to attach something but I can not get it to move off of the video mode.
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Many DSC-S40 users have had this problem and the great man Bob Allen has posted a fix (see link at end) that worked for me and many others. (NB I rapped mine twice according to his instructions and it now works fine). If Bob's 'fix' doesn't work there is another fix at the end of this link (Page 23 when I last looked) that I haven't tried.
Bob Allen- 25th Jul 2006 18:04 Quick update:
I fixed the camera myself as follows:
1. Hold camera firmly in left hand 2. Smartly rap front of camera with knuckles of right hand on the "Cyber-shot" logo.
You won't believe how easy it is to fix!! I had the similar problem with my camera and found the solution on FixYa.
Hold the camera in your left hand. Turn it on. Using your fingers, tap the SONY LOGO below the screen. At first, the camera might turn off. Turn it back on and tap the logo again, nice and hard with your fingers! The screen will turn on!
on the front of the camera, under the flash, two inches from the lens, hit this spot not hard just firm. Do it with the cam ON so you can see it work. Now if you want to fix it you will need to take it apart