I was able to repair the flex cable, woot! With some testing and careful observation it seems that there are 2 problems that caused the malfunction. Firstly, the flex cable was assembled slightly out of place. The spacing to fully cover the exposed pads was just over 1mm too short. [See the red box pictured] This exposed area would eventually short to the LCD frame as the adhesive pad connecting the digitizer and the LCD panel was compressed. Secondly, the flex cable had a double-sided tape under the green line area. Which would lift it just enough to cause intermittent loss of connection when moved.
The fix was to cover the exposed pad in kapton tape I salvaged from another donor board. [Thanks for the lead TheSteve!] I removed the double-sided tape from under the flex cable and fit a 1mm tall rubber shim over the affected (green) area. This is sandwiched under the primary circuit board framing and now works just fine!
A permanent fix will require either complete reseating of the flex cable to the digitizer or replacing it entirely. I dont think I have the tools or experience to do so properly. Anyone have any advice on how I might be able to accomplish this? I do have a junk digitizer I can test with from an old phone (HTC Evo 4G). And worse case scenario, a replacement digitizer assembly would only cost about $31 USD. I was just hoping to get it fully functioning so we can take it on vacation later this month as my 1.5 year old son might need some distraction on the plane.
[BTW, the show "Daniel Tigers Neighborhood" from Mr Rogers fame is pretty awesome as far as very young kids shows go.]