Hi all above,
Two things seem to have some (minimal, unsatisfactory) effect:
1) Zooming right in - and I mean right in - sometimes restores the trace ability, but if it's a big trace then it's really not a practical option.
2) I have shut down Arc and rebooted Windows and that - again sometimes - restores functionality, but eventually that is lost again.
The only workaround is by overlapping the new polygon with an existing one (where the boundaries are in the right place etc and then using the existing polygon to clip the new one. A bit tedious at times.
I hope an ESRI moderator is watching this thread, because some information on why this is happening, or a fix, would be very, very welcome for those of us compiling geologic maps.
Cheers