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I just upgraded to 4.1.2 on an OS X host and also installed the 4.1.2 extension pack. I have a Snow Leopard VM and a Leopard VM. On running either one I see two mouse cursors, one for the VM and one for the host. When the cursor is precisely in the center of the VM window, the cursors coincide. But as I move left from center, the VM cursor moves faster than the host cursor and thus I see two, the VM cursor to the left of the host cursor. Similarly in the right half of the window the VM cursor is to the right of the host. The same effect occurs in the vertical.

Before 4.1.2 I had noticed that when I moved the cursor from within the VM window to outside the VM window, the cursor stopped at the window boundary and it took extra movement before the cursor actually moved outside the window. This is consistent with the 4.1.2 cursor behavior in that the VM cursor gets to the boundary before the host cursor and thus the stall before the host cursor exits. The difference between 4.1.2 and before is now the host cursor is visible whereas before it was not.

I tried changing the mouse tracking setting in Preferences but this had no effect.

Is anyone else seeing this behavior? Any suggestions about how to fix this? Thanks.

Note: I also have an Ubuntu VM and this problem does not occur there.

You see two cursors because you have absolute pointing device enabled in the VM. This gives you a seamless mouse, but the double cursor is the side effect. The reason you don't see this on the Ubuntu VM, is because you have the Guest Additions installed which provide seamless mouse. That works better. There are no Guest Additions for OSX.
So you have two choices, live with the double cursor, or keep pressing the Host key when you need to release the mouse.

Thanks for the reply. Why did this change in 4.1.2 when it has not behaved this way in the very same VM's since I first created them many VBox versions ago?

Probably due to a bug fix in the Absolute Pointing Device functionality. E.g. Windows 98 guests had issues with accessing the whole screen when it was enabled. Have you tried changing the speed of the mouse in the Guest?

Yes, I tried changing mouse speed in the guest before I first posted here and saw no effect.

I tried turning off Absolute Pointing Device and in the VM the cursor froze for my USB wireless mouse. I could not do anything in the VM nor get out of it at all. I used Screen Sharing to connect to the host and with that I could stop the VM. I will probably revert to 4.1.0.

Thanks again for your responses.

Did you by chance use USB passthrough to send the mouse to the Guest? That's the only reason I can think of that can cause the mouse to stay stuck in the VM.