Mullins solution worked for me. 
Found the solution for this issue in another bug as well.
Located:https://bugs.launchpad.net/ubuntu/+source/gcursor/+bug/138491/comments/22

Peekie wrote on 2009-01-25:     #22


Installing a mouse cursor theme has kept me busy for a couple of hours. I agree 
with others that you should be able to change it in the Mouse settings.
Despite all solutions in the above I found a way to change the cursors:
- Download the tar-ball from e.g. gnome-look.org
- Extract it as root to /usr/share/icons
- Then edit as root the index.theme file located in usr/share/icons/default
Change the line Inherits= to the name of your new icon theme.
Logout and login again and your new cursor is in use.

Followed the instructions and it worked like a charm with my Shiny new
clean Lucid Install.

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Cannot change mouse cursor theme when compiz is enabled
https://bugs.launchpad.net/bugs/459647
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