Power off the phone, press and hold the Volume down button and Power button simultaneously while powering on the unit.
The "Fastboot" screen should pop up. When it does press the Volume down key to cycle through the choices until you get to "Android Recovery", and then press the Volume up key to boot in this mode.
Wait for the "triangle!/Android" screen to pop up. Once it does press both the Volume up andVolume down keys simultaneously. A Recovery Menu should pop up.
Tap on the Volume down key until "wipe data/factory reset" is highlighted, and then tap thePower button. Another Confirmation screen will come up. Tap on the Volume down key until it highlights “Yes” and then tap the Power button to make the selection.
After it’s done make sure "reboot system now" is highlighted and then tap the Power button.
In this method you don’t have to use the touch screen any more. So let’s say your touch screen isn’t responding therefore you can’t navigate the phone or go into your settings and do a regular factory data reset. Well now on the 2.3 there is hope. Just power off the phone and perform these steps and the reset should go through.