That grey screen with the 'X' is an X session starting up. The 'X' is your mouse cursor. The fact that it is active is encouraging, and it seems to me that when you've gotten that far, your graphics card settings are correct, though maybe not optimal. 'Ctrl-Alt-Backspace' should get you out of the X session when you see that grey screen.
Anyway, your mouse is obviously not configured properly if it is jerky like you describe. You've probably chosen the wrong protocol. I went through that recently with a PS/2 bus mouse. Does your mouse work under gpm before you try to run X? You should see a white block appear when you move the mouse on a plain console screen, and you should be able to cut and paste with it too. The program 'gpmconfig' will let you change your mouse settings until you find something that works, or you can edit /etc/gpm.conf manually. I'd try to get it working under gpm before tackling X. Good luck. Richard Hall Network Services University of Tennessee