Comment 71 for bug 296610

Robert, get and apply Sebastian's patch - it fixes this erratic, mildly destructive, behaviour.

I'm uploading the fixed module (psmouse) in case you don't know how to apply a patch to the kernel and make a package. You'd have to use the same Ubuntu kernel & version as I do, though! It's the latest i386 generic-pae (i.e. supporting >4GB RAM) for Karmic.

There's still one issue left, but I doubt you'll encounter it during normal use. See my post above about how it's triggered.