Update: October 18, 2007 – The new version of Ubuntu, 7.10 is now out. If you haven’t yet installed Ubuntu, I’d suggest using 7.10. I have step by step instructions at http://arcanecode.wordpress.com/2007/10/18/installing-ubuntu-710-under-virtual-pc-2007/
Last week the folks at Ubuntu released Fiesty Fawn, better known as version 7.04 of the Ubuntu OS. I had planned a new version of the “step by step” to detail how to install under VirtualPC 2007.
Sadly there seems to be a severe error that prevents 7.04 from running in Virtual PC. This error lies somewhere deep in the kernel, and affects the mouse. As you have discovered, Ubuntu won’t recognize the mouse when running inside VPC.
This was actually a much more serious error at first, Ubuntu and several other Linux distros had errors recognizing most PS/2 style mice, as you can see from this bug: https://bugzilla.redhat.com/bugzilla/show_bug.cgi?id=223606
They have opened a new bug specifically for Virtual PC, which you can monitor here: https://bugzilla.redhat.com/bugzilla/show_bug.cgi?id=234348. (Credit due alert: Thanks to Michael Wexler for first pointing out these links!).
I’ve spent quite a while trying various combinations, but thus far have found no easy solution or workaround to the problem. So for now, my advice is simple.
If you have an existing Ubuntu install under VPC, I recommend you NOT upgrade. You will lose your mouse for sure, and probably keyboard as well. If you want to experiment, start with a fresh virtual machine and go from there.
In the meantime, keep an eye on the second bug I listed. I’m hopeful there will be an update in the near future. At that point I’ll work up some step by step instructions, which should be pretty similar to the 6.06 instructions.
Update: (April 25th, 2007) – I found a work around (of sorts) that will let you use your numeric keypad as a mouse. Not the most pleasant experience, but it does work. See my post on the 25th ( http://shrinkster.com/ocx ) for full details.