I have just started compiling a new map and until this morning the trace tool worked - although it always took a long time to 'activate'. The number of polygons has been growing, although at around 200 there aren't that many. I do have several raster layers open that I use (in part) in the compilation.
Now the trace tool has simply stopped working again, as I described in the initial post. It looks like it just creeps up on you; maybe it's related to the number of polygons and layers open, although closing layers once it has stopped working doesn't restore the functionality.
This is very aggravating especially as I have to present at a meeting interstate later this week and this problem is throwing significant progress into serious doubt. Note thatI am working with geodatabase feature classes, not shape files.
It does not appear to be related to size of adjacent polygons, nor whether snapping is enabled or not.
Chris, if you are still there, I will try to send you the polygon file later today (it's on another machine) to see whether you can reproduce the issue.