Most likely the rotor is warped or the piston bore (caliper) is dirty.
Brake fluid absorbs water, and the caliper bore(s) will get pitted. The best thing to do is remove the caliper, pull out the piston or blow it out w/ compressed air (careful). Then you can use 1000 grit emory paper to clean up the bore(s).
Get a new "O" ring from the local hardware, and put it all back together.
On MOST bikes the pads will always touch but with no pressure. The "O" ring acts as more than a seal. It also acts as a spring to relieve the pressure when the lever is released.
