Duncan, can you get your hands on a different kind of mouse? Try with a Logitech or some other brand, see if the problem persists. If that fixes it, then you probably have a driver issue specific to that kind of mouse. If it still fails, then you have some other problem (like something hosed with your usb drivers or hardware/mobo, or a Windows issue).
I know you said you tried another kind of mouse, but you didn't say what. I never actually even load any extra drivers for mouse, I just plug it in and use it, XP drivers work fine. Usually I only buy Logitech or Microsoft mouse, but I've never had any driver issues or a need to even load additional drivers. When you plug a new optical mouse on, it should just work, and not be erratic as you say, at least not really bad.
Have you tried checking in your bios for whatever USB settings you may have in there? I know you didn't change anything in the bios, but maybe you need to load setup defaults or something. Maybe it's related to Windows sp2 as someone already said. You could try reformatting and reloading Windows, but that's alot of work and hassle, and maybe won't change anything, up to you though, you could try. If you haven't ever done it before, might be a good time. I like to do it every once in awhile, just cleans up your system, maybe run a little faster again too, gets rid of weird little this and that problems you may have had. Windows just gets cluttered over time, depending on what you do on your PC of course.
Kinda strange though, that it's not a bad mouse. Your described problem is like a mirror image of what my bad mouse did. It would stop working, plug it in another port, then it worked again, for just awhile. Sometimes it didn't work right away when I plugged it in. It even did this on different PCs too. Bought a new mouse, same make and model, and the problem dissappeared. Oh well, good luck man