Iphone - bottom portion of touch screen not working

First
You have to Restore your iPhone via Itunes
Then check if the problem is solved

Second
If the problem hasnt been solved after Restore ,this means that the Touc Screen of your iPhone is need to be replaced with a new one

Note : The Touch Screen of the iPhone 4 is not seperated of the LCD screen,so you have to change the Whole screen (LCD and Touch Screen
)

Even though the iPhone is a device that is extremely convenient to have, it still can cause frustrations. Specifically, there may be times when the touch screen does not work properly.

There are various problems the iPhone touch screen could encounter. Although there are times when the screen does not work altogether, there are other situations when certain portions of the screen work and others don't. Of course, it is possible that the entire screen works, but is simply slow. Regardless of the exact problem, there are ways to troubleshoot the iPhone to diagnose the real problem.

The touch on the screen works as a seperate component from the screen itself. Either the lower portion is damaged and has to be replaced, or it is wet and can't sence touch as a result. The one may get better in time if the components don't corrode, the other is probably not resolvable...

Your device might have a problem in the touch screen.

In iPhone 2G the touch panel and the LCD screen are one unit that cannot be separated.

You shoud try to replace the iPhone screen with a new one and the problem should be fixed.

Id try going to settings, general, reset and try that, but id do a sync firstly so you don't accidentally lose everything......

it looks like yourr lcd is broke down. because when you touch it looks normal.

As you have already said your iPhone has been tampered with, you have an Unlocked iPhone which renders the warranty Void, even if you put the phone back to defaults once the iPhone is in Apple's hands the software tools they run against your phone will tell them it has been hacked and you will get no support.