I have a 7600GT (AGP). It used to work fine - fairly new as well.
Had black screen issues awhile back when I popped in some new RAM into my Mesh Desktop tower. Took it to shop they bech tested the components - realised that RAM was full of errors and mobo (ASUS A8V) had shorted somewhere.
Bought a new identical mobo and shop fitted everything back together.
Windows had some problems booting, but I took it from shop, re-installed XP.
The card appears to be working but im having trouble trying to install any drivers for it.
Installed the ones that came with the card - The cursor turns to a white square and some parts of windows appear strange.
Uninstalling the driver, back to normal.
Tried 178.13, 178.24 from Nvidia site and still same problem.
Tried using driver sweeper but still same problem.
Does your system have any type of Remote Control software running? I had a very similar issue when running an ATI All-In-Wonder X1800XL and the Remote Wonder software. Disabling the remote control software resolved the issue for me.
Edit: I suppose ANY type of alternate mouse control could cause this.