Super Mario 64 DS had an interesting feature where you could put your left thumb on the touch screen and use it like a joystick. The neutral zone would be wherever you put your thumb down, and a little diagram would appear on the touch screen showing where the edges, neutral zone, etc., were.
I remember this actually not being too bad. I didn't use it over the D-pad for any precise movement, but part of that was the awkwardness of having to stretch the thumb over the the touch screen. There also was a little thumb pad on the DS strap you had to wear to get it to work smoothly, and that was a little clumsy to use. It was also hard to get a sense of where the neutral zone was, etc., since the only indication was a diagram under your thumb.
It looks like this controller takes that same idea and improves on it. You won't have to stretch your thumb or wear a thumb pad, and the circular trackpad maps better to a joystick than an arbitrary circle somewhere on a touch screen. It also looks like there's ridges on the pad, which could help with getting a sense of where you are.
If it was sort-of viable as a side feature in a nine-year-old game, I'm optimistic about Valve's ability to make it work. As you said, it's not like Valve is unfamiliar with the area.