OS or I/O

Have a clone with a Biostar M6VLQ & Celeron 1.2.
It came with XP which I replaced with 98SE (different HD).
In both configurations, the system will suddenly replace the Windows cursor with a large, sometimes vertically textured, square. The upper left is the (active) part of the cursor, which is enough to properly shut down the system but not to accurately navigate. Replacing the mouse doesn’t help.

Is this the BIOS or the I/O?
Both are OK according to diagnostics.