You have to edit the pointer section in your xfree config file, for a PS/2 mouse you need to change it to this,
Code:
Identifier "Mouse1" #use what you have there already.
Driver "mouse"
Option "Protocol" "IMPS/2" #use this
Option "Device" "/dev/psaux" #use what you have already
Option "Buttons" "5" #add this line
Option "ZAxisMapping" "4 5" $add this line
Save and restart X for mouse wheel goodness