Going through my parts bin, I found a Synaptics touchpad from an old laptop and figured this should just work as a replacement.
Ok, when I say 5$, i mean really cheap. Clearly a loose arduino is already 20-25 USD (but you can replace it with just a bare ATMEGA168 chip for ~2 USD) , and this touchpad would probably cost you some money aswell, when you are not able to salvage it from an old laptop.
WARNING: the Kaoss pads and similar hardware all have built-in audio outputs, this project does not ...
Step 1: Find the signals
This website had the picture you see here. From this I figured out which of the testpoints on the board (wow, many!) where connected to these 3 pins. (see second picture).
I'm not quite sure if the T1001 controller is similar in pin-out to this controller, but the signals shouldn't be too hard to find if you know what to look for.