Hello Luke,
Welcome to Microsoft Community.
Can you make it clear to us whether you are using a Surface Pro 7 or a Surface Laptop 7? The "7th edition" usually refers to the Surace Laptop 7. It's not like we got your Surface model wrong.
If you only update through Windows or have tried driver updates in Device Manager, try downloading the driver and firmware package for your device model and installing it manually:
Download drivers and firmware for Surface - Microsoft Support ****
After the installation is complete, restart the Surface and verify that the touchpad responds to scrolling with two fingers.
If that doesn't work, I recommend you back up all your important data and try resetting your Surface. Click on the Start menu -- Settings -- System --Recovery--Reset PC, you can first try "Keep My files" this is the least impact on the data in the computer option.
As far as I'm concerned, the possibility of hardware failure is there, but I still recommend that you try to troubleshoot at the driver and system level first.
Please don't hesitate to tell me the result.
Best Regards,
Mitchell | Microsoft Community Support Specialist