I can confirm I had the same problem with 2.6.31-18 (ICH7 chipset). After 
following these instructions to upgrade the kernel to 2.6.32, everything works 
fine:
http://www.ramoonus.nl/2009/12/03/linux-kernel-2-6-32-installation-guide-for-ubuntu-linux/

The mouse doesn't freeze anymore and apps are still responsive even when
under heavy IO load.

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Very poor desktop response (high latency) during I/O-load with SATA+NCQ
https://bugs.launchpad.net/bugs/343371
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