Did you ever accept any driver from Microsoft? And ports do go bad. As a test I boot up my UBUNTU LiveCD so I don't disturb the installed Windows and see if the mouse works on that port.
I have a Compaq Presario F700 laptop running Windows Vista Home Premium 32-bit with Service Pack 2. a couple of months ago I got my ram upgraded from 1 to 2 gigs. around that time i also got an external usb hub (machine has three, but i also have an external webcam (none built-in) wireless mouse and keyboard). Anyway when I get the usb hub, I plug my keyboard and my webam (logitech 250) into it. About 1 month goes by without any problems then for not reason I get the error message saying "Webcam plugged into usb 1.1 port. Please plug into an avaiable usb 2.0 port". Ever since then, the port on my laptop that the hub was plugged into does not want to recognize anything I plug into it (I get the USB device not recognized notification). As a test I plugged my mouse adapter into the port (adapter has a light to tell me when it is working). and the light came on until the welcome screen.
Sorry this took so long to explain, I tried to provide as much detail about the problem that I could.