Adding 
Option "SWCursor" "on"
to xorg.conf
and disabling Compiz ("visual effects" to none) resolves the mouse cursor 
problem, but isn't a real solution.

Have removed the nvidia packages and manually installed 173.14.12 according to 
instructions here:
https://help.ubuntu.com/community/NvidiaManual
but still no result.

Seems that it's not anything to do with the nvidia supplied files.

What about nvidia-kernel-common and linux-restricted-modules? Have these
changed since 7.10 or 7.04 or any other in graphics sub-system?

-- 
Mouse cursor broken - appears square, garbled
https://bugs.launchpad.net/bugs/256631
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