As mention in the tech thread - if I try software mode the game crashes at startup and I have to reinstall the gameopt file to be able to restart the game. I have spent as much time trying to get the game to run in software mode as I have trying to get the cursor problem solved.
I even contacted Ross Ridge, the programmer, who said that with modern drivers he couldn't do anything. he agreed my problem was the bug he tried to fix with his graphic patch.
I have spent more time trying to get this game to work than any game before it. At some point you have to draw the line. I have tried a USB mouse, a PS2 mouse, 4 different NVidia drivers, 8 or 9 re-installs, Virtual PC download and attempt to use there (to no avail) and I have played the first village part up to meeting the snakeman about 30 times!
What is a little surprising is that no on on this site or any other has talked about this cursor problem, 99% of the messages are about getting the game to start. Once started, it would seem nobody has this cursor problem, so Ross' fix obviously works. I have no idea why it doesn't work for my game, especially now that I have absolutely every other aspect of the game now working!
I'll end just by thanking you and everyone that tried to help - you're all a credit to PC role-playing!