VMware Tools in Debian 4.0 (xorg 7.1) and Ubuntu 7.04 (xorg 7.2) guests

In both VMware Server 1.0.3 and VMware Workstation the vm mouse does not function properly in GNU/Linux guests that use xorg 7.1 or higher

# aptitude install xserver-xorg-input-vmmouse
and
# vi /etc/X11/xorg.conf

and change "mouse" to "vmmouse"

See the VMware KB