adamdschneider: the mouse cursor is nowhere to be seen. There is a weird shifting pattern of graphical distortion, a spot of it jumping continually around the screen. If I move the mouse a little I can sometimes see the cursor (a mouse pointer in a circle with a line through it) in the far upper left of the window, though the glitch continues. My XP Mode is fully updated, as is Direct X, and I have unchecked the "enable pointer precision" box for the mouse int he Control Panel to no avail. It is totally unplayable at present.
What about pointer integration? (The feature that lets you share one mouse pointer between the vm and your real desktop.) You need to turn that off too, since it's incompatible with anything that uses DirectInput in a certain way for mouse control, causing exactly the issues you describe.
You may have to launch the vm in a window rather than seamless mode to disable pointer integration, but I would be surprised if the fullscreen resolution switches worked in seamless mode anyway, so possibly you already did...
Why're you running in a vm anyway? Any particular problem with running it natively?