Your digitizer is damaged. The dent makes the digitizer see a false press when you remove the pen/finger, which means the digitizer reports a quick move from the correct location and to a neighbour character.

While you press on the screen, you "win", but as soon as you release the pressure the digitizer detects an incorrect coordinate.

This is similar to what happens if you press with one finger on the display while drawing with another finger. The cursor will jump and the N900 will create some form of "composite" position since it doesn't support multiple tracking points.