Ok, so 5 or 6 restores later I'm getting sick of this. I have no idea what it is in the XP updates are affecting the mouse drivers and I'm loathe to turn off the automatic updates incase there is something I really need. Are the updates really that important?
Damned if you do, damned if you don't.
Are the updates important? Given that they routinely contain fixes for exploits that allow anyone on the planet to break into your computer and run whatever spamserver they feel like it on there doing their dirty work, I'd say "yes, they really are that important".
On average it takes less than 15 minutes know before an unpatched original XP installation (without the servicepatches) is hacked, simply by hooking it up to the internet and not doing anything. (Just do a google for a plethora of articles describing exactly that)
If you are behind a firewall or router using NAT the danger of getting broken into if your machine is unpatched is less, but you will still be very surceptible to websites doing fishy things exploiting internet explorer and scripting engines and the likes.
without the updates it's just a matter of when your machine is going to get broken into, not 'whether'.