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The Question
How can I unpair the trackpad as a mouse and pair it using trackpad option instead?

Background

I made the mistake of pairing the Magic trackpad via System->Bluetooth->Bluetooth Setup Assistant. By doing this the only thing I can use the trackpad for is pointing an left clicking. I now see that it can be paired via the System->Trackpad->Set Up Bluetooth Trackpad... option.

What I have tried

Inside Bluetooth settings: Disconnected the device, then using the - button removed it. Then powered down the trackpad and restarted the pairing process by holding the power button.

While the green led is flashing, I go to the Trackpad set up and find the device. However it keeps failing when connecting to the trackpad. I did notice that it fails immediately after seeing the "Connected" message displayed on my screen. At this point I can use the trackpad as a pointing device, but am unable to connect to it using the trackpad set up.

System Settings
OS X Lion
Using USB Overdrive (for a wired logitech mouse)

UPDATE
Following the advice of a comment, I used the XCode's Bluetooth Manger and reset every possible device. The issue still persists.

To find the Bluetooth Manger (assuming you have XCode installed and using Finder): Browse to MacHD/Developer/Applications/Utilities/Bluetooth

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2 Answers 2

up vote 1 down vote accepted

Turns out it was USB Overdrive. Running 3.1 still causes issues with Lion.

When Overdrive is installed it only sees the trackpad as a mouse. I uninstalled USB Overdrive and Lion detected it after reboot with no trouble at all.

This link was quite helpful as well.

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Did you unpair by going to System Preferences... -> Trackpad -> Set Up Bluetooth Trackpad...

Then select the trackpad and choose Unpair
This is different to just removing it from the list of Bluetooth devices.
You will then be able to pair it again properly.

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