Muskrat, some questions.
1) Does this only happens with Morrowind? and related to it, have you played the game earlier witout the problem (like on another comp)
2) Have you all patches installed?
3) Have you the latest drivers of your videocard?
4) Also you might try to re-install your mouse drivers, ther might be a problem with them too.
5) Also if you play Morrowind, make sure no other programs are running. Sutch as anti-virus, firewall, ... (it helps alot, i know from experience)