can you go to device manager with kepboard and check that there is a yellow

exclamation mark on mouse... if yes then you update the driver of the mouse there... and the mouse will work... if after every boot you are facing this problem and on trying to update the driver mouse comes back....(this happened on my friends machine once) the only solution that we were able to do was
1-> install a non mouse compatible driver
2-> do scanreg and store a registry point...(basically making sure if win98 is undoing registries then it undo's to this)
3-> restart machine
4-> install correct mouse driver
5-> do scanreg again
6-> restart the machine...
this is what we had done at that time.. i am not sure if you are facinf the same problem.