SuSE 9.2 + Belcan Omniview SE KVM
I finally did get this to work with some of the suggestions in this thread. The odd thing was that the same distro and kvm worked fine on an older Athlon 700 machine.
I ran /usr/X11/bin/xorgconfig on the newer machine (Athlon 1400) and configured the mouse for Auto and rebooted. After that, all my worries went away. I too use a USB Microsoft Intellimouse Explorer with a USB --> PS/2 converter connected to the KVM.
With SuSE 9.0 and RedHat 7.3 I never had any of these mouse related issues.