I guess that for me it's related to the video controller (Brookdale): -
when putting resolution as low as 640 x 480, mouse appears again. Of
course this is not a workable video resolution.

lspci | grep VGA:

00:02.0 VGA compatible controller: Intel Corporation
82845G/GL[Brookdale-G]/GE Chipset Integrated Graphics Device (rev 01)

-- 
Mouse stopped working after upgrade to Karmic
https://bugs.launchpad.net/bugs/378818
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