Whenever I do a kernel upgrade on my Slackware12 system, one of the things I do to overcome the issue you are experiencing is to edit the /etc/rc.d/rc.modules file, and check that the following line is uncommented:
/sbin/modprobe psmouse proto=imps
This will enable your mouse to work correctly again on the new kernel.
It is also advisable that you ensure that your /firstname.lastname@example.org symlink is pointing to the correct rc.modules-2.6.xx.xx file.
Hope this helps