I have my fresh install of Morrowind and correct order of 2 expansions. loaded into c/ and not /86. Have played up to the finishing of all the questions asked in the prologue part. Ive done all this with hit and miss guessing at where the cursor is. Keyboard works. Anyway what should I do,

This is the first I've heard of this problem. There's a couple of things you can do with Control Panel/Mouse/Pointer Options. Snap To and Mouse Trails might work for you. The problem is that they take effect full time rather than just in-game.

Also, if you have a game pad or joystick hooked up, that could give some trouble. If you do, try disconnecting it.

If you have a Logitech mouse it could be a problem with the scrolling wheel function, since it has a known issue in Windows and you'll need to disable the scrolling wheel.

Another thing you can do is to update both your mouse+graphics driver in Windows.

Also have you install DirectX 9.0c on your computer. If not just install http://www.microsoft.com/downloads/en/details.aspx?displaylang=en&FamilyID=3b170b25-abab-4bc3-ae91-50ceb6d8fa8d and reboot.

Yep, its a Microsoft Trackball Explorer 1.0. I will seek out any driver updates, but I must say that I have also switched out my Mouse to a Logitech trackball and the very same thing happens. I see the mouse set as 0 in the ini file and setting it to 1 dont work either. I have been in the control panel/mouse area and have played with everything I could think of. Will try other suggestions mentioned. thank you so far..