1... The Mouse:
It's not a PS/2 mouse if it's connected to the USB port. It's a Human-Interface-Device (HID) mouse. AFAIK, you should have no problem using this mouse... I'm reasonably certain that the 2.4.29 kernel that comes on the install disc has HID support, and I know for a fact that the 2.6 tree has full support for it, because I'm using an HID mouse on my desktop.
2... The Radeon 7000:
You should have no problem running X. By default, the system will install X with the VESA driver, which is a standard that every video card has supported since around 1992. You might achieve better performance by running xorgconfig as root, which will take you through a menu-driven system to build a new xorg.conf file. Choose the standard ATI driver, and you should have no problem with it. This may also be necessary to enable the scroll wheel on your mouse.
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