Yes, this is more or less your average touchpad that one can find from inside a laptop. This model, like majority of touchpads out there operates with PS/2 standard. This means that it can be directly plugged in to a PS/2 connector and with proper drivers, function as a mouse.
As it happens the PS/2 communication is not that difficult to achieve with an Arduino board. Kristopher has written an Arduino/Wiring library that offers all the functionality that we need at this point.
I will be using the MAX7219 Led Controller too and for this one can use LedControl library, written by Eberhard Fahle.
I happened to find this TouchPad from inside a dead Fujitsu Siemens laptop. Model number for the pad is ALPS JCI-S1S. These kind of modules are easy to source also from ebay etc.
Here is the pinout of this particular pad. Ground and supply voltage pins are usually easy to guess just by looking at the circuit board but the data and clock pins were just randomly tested in this case.
As the flexible cable is not the best suited for use with Arduino, I soldered better wires for the pins. Hot glue was used to make the connection more secure.