I've had this problem each time I try to upgrade the guest additions on my windows xp guest that's running on a ubuntu feisty host.
Whenever I do the upgrade and enable the mouse integration, the mouse cursor just drops down the screen no matter which direction I move it!!
I've tried uninstalling the 1.3.6 guest additions while having the mouse integration enabled & having it disabled with the same results.
I've also gone to the windows task manager and killed off all the vbox items I could find and still get the same results after installing the 1.5 additions.
I know the 1.5 additions work with this machine, because somehow I had it working even with the seamless mode on my ubuntu host, but had to jump back to an earlier snapshot because of another issue and now I can't get the newest additions to work.