I'm running IWD2 with no mods and the mouse feels like a laggy software mouse instead of a hardware mouse. Its playable but it is not a very pleasant way to play the game. Is there a way to force a hardware mouse on?

Try installing DDrawFix.

Are you forcing VSync (either on or off) in your graphics control panel? Try toggling that. You could also try the config program, and make sure that 'System' sliders are all high, you have a cache of 768MB and that framerate is 30 AI (important).

I tried those options and nothing changed that I could see. I already had settings maxed.

I'm thinking that it's probably just acting the way it was programmed. It's been a while since I played a game with a software mouse and I'm overly sensitive to it. I'll get into it a bit and find a big battle to see if it bogs the mouse down more.

If anyone was wondering what I meant by software mouse this post I cribbed from Reddit describes it better than I can.

"Basically the game hides your actual mouse cursor, and instead draws a graphic on screen at the position where the pointer is. This is considerably different than a game changing the mouse icon used by the OS because it means the mouse position on screen is only updated during the games update cycle instead of being handled by the OS. If your framerate isn't perfect, the onscreen mouse lags behind the real position. If you're getting heavy frameskipping or freezes, mouse control becomes practically impossible since it's also freezing onscreen while any other game using hardware mouse output would continue to update the position on screen even if the game isn't responding well. If you have a high end PC that runs the game at a perfect framerate, you'll never notice this."

The Infinity Engine games have no hardware-cursor, so your mouse will be sluggish. The game's frame rate is capped at 30, but you can increase the cap to 40 or even higher. Either use the config application or set the cap manually in the "icewind2.ini" file (found in the game's installation folder) under "Maximum Frame Rate" when you open it in a regular text editor. Note that increasing the frame rate of the game will also make the game run faster, which may be a good or a bad thing for you.

Finally, make sure that the game is not v-synced by your driver settings. If v-sync is on your frame rate will always be capped at the nearest integer fraction of your screen's refresh rate. If you have a 60Hz monitor that will be either 60FPS, 30FPS, 20FPS, 15FPS, 12FPS, 10FPS, 6FPS, 5FPS, 3FPS, 2FPS or 1FPS. V-sync will always pick the lower frame rate, so if your frame rate would be 59FPS it will drop all the way down to 30FPS.

I find a maximim frame rate of between 40 and 50 to be a good value, it makes the game play faster and I use the space bar in combat all the time anyway.