Just in case some other unsuspecting fool like myself trusted Windows Update to load a new hardware driver only to completely lose PS2 mouse functionality, here’s a fix:
First, use a USB mouse temporarily to navigate; In Windows Explorer, browse your C:\Windows\inf directory for “oemxx.inf” files. The “xx” is a number assigned by Windows- mine was oem11.inf.
Right-click it, click “Properties”. Look at the “Created” date- it should be the same as the Windows Update session that installed it. Look at the “Modified” date- mine said Thursday, December 11, 2008 6:14:56am- the date the driver was packaged.
Delete it or drag it to a folder where Windows won’t look for it, like My Documents.
Open Device Manager, expand HID devices and delete the IdeaCom device. Reboot. Done.
