We’ve seen quite a few emails from users having trouble with Swype after manually updating to Froyo and wanted to let you know that this is normal. In fact, Swype has identified the problem already and provided a simple fix. Just uninstall and reinstall it.
To uninstall the Swype Installer and Swype:
1. On the phone, go to Settings → Applications → Manage Applications → SwypeInstaller → Uninstall
2. When it asks if you want to uninstall SwypeInstaller, press OK
3. SwypeInstaller should uninstall
4. Then, in the same location choose Swype → Uninstall
5. When it asks if you want to uninstall Swype, press OK
6. Swype should uninstall
After that, simply install again using the “installer” which should be somewhere on your SD card just like you did from day one. Here are the official instructions for reinstallation. Fixed!
Cheers Yager for the faq link!