A reader (Mardis) reports getting a persistent watch cursor at startup in Mac OS 8, just before items in the Startup Items folder should launch, forcing him to restart. This is a familiar problem and is usually solved by holding down the Option key at startup (to force Finder windows to close). However, this did not entirely work in this case. The next time he started up, even with all windows closed, the problem returned. He eventually found that deleting the invisible file OpenFolderListDF eliminated this problem.
Update: John Manning writes that this file is for keeping track of Mac OS 8 tabbed windows/folders. Closing all of them should at least work-around the recurrence of this problem.
Jeff Leigh has a different view: "From our experience, OpenFolderListDF is used to keep track of which windows were open the last time the computer was shutdown/restarted."
Patrick Hackshaw claims that, when he had this watch cursor problem, it was solved by disabling Aladdin's TFI control panel.