so glad this game is available on GOG, great stuff!

However i seem to have a small but frustration problem. My mouse cursor really does not like hovering over items to pickup/click, it seems fine all other times but when a try an pick an item up i loose all sensitivity and the dpi seems go through the floor, making it very frustrating to play the game.

Any body else having this problem? or better, a solution?

I noticed an overall high sensitivity which is normal when you play low resolution games on high resolution settings though. This could possibly be fixed if one lowers the desktop resolution, but I'm not sure if it works this way and I myself can cope withe the sensitivity.
However the way you described it, it sounds more like you have a temporarily decreased sensitivity when you hover your mouse over an up-pickable item. I can't confirm that and have no idea what might cause that...