Not sure why the mouse wasn't working when using DSL as a guest in a VM. With a VM the host provides a generic virtual mouse device to the guest, so as long as the host supports the pointing device I would expect it to work in guest as well.
Input devices can be enumerated via
Code:
cat /proc/bus/input/devices
If the mouse is not identified with the above (when running DSL natively) then it is likely the underlying kernel support is not there.