First, the latest software is 10.1.3 (18 Jan 2011). Version 10.1.2 may not correct the "2011 date rollover" problem of the keyboard and touchpad freeze in one step (see http://xoshare.org/mi for links to wiki sources).
An important step in the update to 10.1.3 is, at the end, to remove all sources of power (unplug AC and remove main battery). This deletes stored old parameters, which are part of the freeze problem.
Try the removing of all power and if this does not work, then update to 10.1.3, which will work (have done many, many times). As a side note, a USB mouse will work even though touchpad does not during this problem. The only other glitch may be that the firmware did not update when you updated to 10.1.2 --- the AC power has to be plugged in and the battery fully charged for the firmware to update. Otherwise, the software will load, but the firmware will not be updated.
If the mouse works in the hardware tests (firmware function), then the above "Linux" software is the culprit.