OK, I'm not sure exactly how to fix your problem, but here is what I would do.
Firstly, you are not using Nvidia's driver, but the free version that came with your distro. Download it from www.nvidia.com
and follow the instructions to install it. Don't forget to modify the XF86Config when you're done as per the instructions which will be installed at /usr/share/doc/NVIDIA_GLX-1.0/README
If that doesnt fix your problem, then try editing the XF86Config, and change the line
#Option "HWcursor" # [<bool>]
Option "HWCursor" "off"
This will make sure the cursor is rendered in software so you can isolate the problem to a driver configuration problem or something else.
Hope this helps.