Can you move it around, or does it freeze ?
USB, wireless, or hard-wired mouse ? (I sometimes have my USB mouse freeze but have not had cursor altered in the way yours is.)
Sometimes my cursor actually disappears during such a 'freeze' and I tend to put it down to me running too many things at once (on XP, here, currently running 7 Chrome browser windows, 7 other assorted windows [for windows explorer, task manager, MS-DOS windows, volume control], 2 Firefox windows, and 4 other windows [EditPad, Total Recorder, BBC iPlayer desktop]
Has not frozen so far, but if it did I would close some items. PC has 1 GB RAM, 3 GHz CPU, with 160 GB HD, 3 external (USB) 500 GB drives, DVD drives and assorted SD and other storage cards. Load all 'adds up'...