mouse lag in games but not the OS?

I wonder if anyone can resolve this query. I have a wired optical "Trust" 800dpi mouse that cost about £7. Now when I am just surfing the web or using low demand software it is plenty smooth and accurate enough for me. When I go into games, especially demanding fps games, the movement becomes very jerky and its pretty hard to be accurate for sniping and medium distance shooting. I play my games on my monitors default of 1360x768 and I do adjust the mouse settings to get the best response but I never am happy. Currently its very much annoying me in Call of Duty 4 online. Can anyone tell me where my problem is? I do also get a lot of frame drops and I blame my cheap 8600 GT for that so I'm upgrading to an 8800GT card (also getting the Corsair TX650 psu to power it all). Will this make a difference? Will a games mouse like the Logitech MX518 make a difference? I have displayed my system setup in my signature.