I used cheap Home Depot indoor/outdoor carpeting cut to 1" wide strips and contact cemented to the top and bottom side surfaces of the trunk to prevent scratches on the sides of the boards. Hobie sells a thin rubber strip that can be glued into the ends of the trunk (it is kind of a pain to install becaue it uses super glue, so you end up gluing your hand to the dagger board trunk). I placed a piece of the rubber strip in the top forward end of the trunk and two strips on the bottom aft corner of the trunk. It takes a little time to fine tune the length of the strips to allow proper dagger board operation up and down, so it's best to prop the boat up in such a way that you can drop the boards all the way down. The advantage of the rubber is that it adds some grip to the board. The friction between the top forward corner of the trunk and the leading edge of the board is what holds the dagger board up. Carpet may not provide enough friction and you may find that you have to make the bungee cord very tight to hold the board up otherwise. Also, carpet/padding is not required in the top aft or bottom forward ends of the trunk. If you look at how the board operates, it only makes contact with the top forward and bottom aft corners of the trunk.
I've never found any solution that is permenant. The board will eventually saw through the padding in the bottom corner of the trunk and the contact cement holding the padding onto the bottom sides of the trunk will eventually wear out and let go leaving you with a flap of carpet inside the trunk, so it's a good idea to inspect and replace the padding regularly. Also, if you're a casual or beach sailor, I would suggest using only a minimal amount of padding since, unless you're racing, being able to get the boards up easily is more important than a few scratches or dings.