It's November 1, 2018 and it seems MS has still not fixed this issue. For the life of me I couldn't figure it out. It seems that the root cause is pairing the Surface Pen. But, moreover, it only happens when on battery power! So, to prove the theory I did the following...
Surface Pen Paired & On Battery - Touchpad is pretty much useless. Wanna put a gun to my head and pull the trigger!
Surface Pen Paired & On Power - Touchpad works perfectly. Some have changed performance to best versus appearance and seems to fix the issue, however, when on battery it will drain much quicker and the fan will kick on more often and makes it more noisy.
Surface Pen Unpaired & On Battery - Touchpad works perfectly and performance managed by windows automatically
Surface Pen Unpaired & On Power - Touchpad works perfectly and performance managed by windows automatically.
Surface Pen REPAIRED - Touchpad works perfectly weather on Battery or on Power.
Looks like the Surface Pen IS the problem upon initial pairing, but problem is resolved once the pen is unpaired and repaired.
This is so weird. MS should fix this out of the box.