Random thought came to me seeing the possible link about Microsoft Mice and Keyboards mentioned. (Running with MS Touch Mouse, MS Mouse, MS Keyboard, and 2-point Touch Screen here, and never seen the problem, so its just a guess. Though I HAVE already
been editing how the below runs to make it work.)
Try killing off the iPoint.exe and iType.exe programs in Task Manager (Details) if you can, and see if that gives you basic mouse functionality. If that does work, run iPoint.exe and iType.exe with Administrator privileges to get their functions back and see
if the lock-up doesn't happen again.
iPoint.exe and iType.exe are part of the MS Drivers for their line of mice/keyboards. They have a problem though, as various functions DO NOT WORK (specifically Touch Mouse stuff) when a program has Administrator privileges, hence why I have a Task to run
both iPoint.exe and iType.exe with Administrator privileges. If you are running with a different UAC or different Administrator access/privileges, then those two programs could be causing problems.
(Edit: realized you may not be able to even log in.
You can disable iPoint.exe and iType.exe from auto-starting by finding the files in Safe Mode, right-clicking on them, "Change Settings for all users", and check "Run this program as an administrator". Windows doesn't normally run administrator programs
(unless via Task Manager), so that should prevent them from loading on Boot for you to test. If this doesn't do the trick though, remember to undo that change for both.
Files are found at "C:\Program Files\Microsoft Mouse and Keyboard Center")
This is just a guess though.
The only other thing I can think of, is it may be USB Controller Drivers acting up. I would probably try to change the drivers to a generic USB drivers instead of the auto-downloaded ones, but that is a trial and error method and something to be careful with.