First off I'm new to Debian, but not entirely new to linux. Anyways, I've got Debian woody installed with all USB support installed also. I can start X/xdm/gdm just fine, but my mouse pointer only moves vertically and doesn't move properly, sometimes it goes the opposite direction, sometimes the right direction and only moves a little.

in XF86Config I have:
Section "InputDevice"
Identifier "Mouse0"
Driver "mouse"
Option "Protocol" "ImPS/2"
Option "Device" "/dev/input/mice"
Option "ZAxisMapping" "4 5"
EndSection

Any suggestions on what I can do?

The crux of the problem is with the hid module, it needs to go in before any other usb modules except usbcore, so the solution is to place it in whatever debian uses to start modules at boot time, (EDIT: according to the comments in slackware's /etc/rc.d/rc.modules, this mechanism was inspired by debian, so you should be able to use/create a /etc/modules file and have it work) on mandrake it's /etc/modules (not modules.conf) which will be used by /etc/rc.d/rc.modules, on slack it's the same, (at least for 8.0), chances are this mechanism is as of yet unused so the file may not exist or may be empty except for a comment or two.

To test this out on your system rmmod all modules associated with usb, eg: usbmouse, hid, usb-uhci, printer etc., leaving only usbcore loaded, then insert them with hid first and the rest in a sensible order.