Download and install the other drivers also not just the BIOS. Anything happen before all of this? Did you re-install XP or something? Get an overvoltage error on a USB port?
We can try a step to rule out hardware issues, make a Linux Live boot CD, boot off that. It will load mouse drivers. If the mouse works OK, you can pretty much rule out any physical issues with the laptop. If they don't, you may be looking at a motherboard replacement. If the mouse does work, and all of the driver updates got you no-where, you may need to re-install Windows, or at least do a Repair installation of it, but for that you need a disk.
http://michaelstevenstech.com/XPrepairinstall.htm
Download Linux CD here, create the CD using an ISO burner software http://www.knopper.net/knoppix-mirrors/download.php?lang=en&link=http://csociety-ftp.ecn.purdue.edu/pub/knoppix/