1. Download a Knoppix Linux Live CD iso, make the bootable CD, load Knoppix and let it run.
If there is no sign of the problem in Knoppix, then there is no problem with the hardware [HDD excluded], or the BIOS.
It's a problem that only exists within the Windows environment [after Windows begins loading?]
2. Does it also freeze in Safe Mode?
3. If you have an image backup of C: made recently when all was well [and matches the present hardware], and you restore that and the problem disappears, this also would prove it was a problem with the Windows software environment.
4. Did this problem appear after some software/hardware change...OR NOT?
5. In the past, [do they still?], a mouse used a 16-bit program and a special message queue for 16-bit programs.
The 16-bit message queue uses "Co-operative Multi-tasking" rather than "Pre-emptive Multi-tasking".
This means that ANY 16-bit program that does not relinquish the CPU [freezes or goes into a loop] would cause every other 16-bit program to freeze [the mouse being one of those].
a. Go to your help files and look for "16-Bit Programs>Troubleshooter" and use it.
b. Go to "Device Manager>View>Devices by connection>[Expand the tree]>[Mouse]>Properties>Driver>Driver Details" and note the driver files used.
c. Go to "System Information>Components>Input>Pointing Device" and see if the "Status" is "OK" for the mouse [OR NOT].
d. Go to "System Information>Software Environment>Drivers" and see what the status is of those mouse driver files.