Well, I would go with option B...
First boot into Safe Mode, and remove the old mouse from Device Manager, it might be that "ghost" drivers are causing trouble.
Check Control Panel, look in Device Manager and see if you have any IRQ or DMA conflicts, check the MS website and see if they have anything about the same problem in their FAQ or troubleshooting, and see if you can download newer drivers for it.
I had a similar problem with one Windows install, I set up defrag to run at night, with Task Manager, and didn't realize I had to turn off the virus scanner, which made defrag restart forever. Defrag continued to try and run in the background, and made the mouse jerk and flicker. If the only change you made was installing the mouse, that shouldn't be the problem, but I thought it might be a possibility.
Eagles may soar, but weasels don't get sucked into jet engines!
Note: Please post your questions on the forums, not in my email.
Computer Information Links