Thank you for your response.
Yesterday, I figure that out.
I downloaded the Synaptics driver - it comes with a kernel patch alps.patch that you need for kernels < 2.6.11 (I am on 2.6.9).
I decided not to do it.
I just went to the BIOS and DISABLED the legacy USB support, and suddenly the touchpad was functioning.
X just assumes it ia a regular ps/2 mouse, I assume.
I may decide to use the driver, but for now, I will keep it this way.