Check that you installed the right image, there's one for resistive and one for capacitive PiTFT's
If that doesn't help, you can verify your RasPi model number with the command cat /proc/cpuinfo, if it's revision # 0002 or 0003 that means it's a rev 1 Model B, and will not work due to the I2C pins changing.
We'll keep looking for a low cost multitouch screen, but we found that at the small size of this screen, single-touch is pretty good! Also, very few linux programs support MT.
Check out the 2.8" resistive PiTFT FAQ for an answer to this common question.