I have this problem and have experienced some interesting things with it recently.. here's my story:
It all started with a USB mouse, the Steelseries Ikari laser mouse. When i got it, i had a weak computer that just didn't seem to be able to supply the power this tank of a mouse required. I eventually got a new computer, and things were great... for a little while.
It has a function where you can press and hold down a button on the mouse, and change the CPI setting by increments of 1CPI. no need for drivers for this function, but you do need drivers for a few other options, such as setting special binds to M4 and M5. NOW, when i got it, i felt the need to use this function a LOT to find my correct sensitivity. I also used the software to do these changes occasionally. After a while, i began having these problems... at first, if i moved the mouse too fast it'd sometimes skip, other times it'd turn off and then back on and resume working. it seemed that messing with the cord would fix it, but who knows, could have just been a placebo.
Now after a while i began getting the "device not recognized" problem. id unplug it then plug it back in and it'd work fine for a little while. Little bit down the road, it wont work at all, ever.
Jump ahead a few months. I install windows 7, reinstall counter-strike, and dont even bother with my mouse. until i decide what the hell, why not... i wasn't doing well with my ball wheel mouse, was worth a shot. i plug it in, and holy crap, it works! i go and unplug my PS/2 ball mouse, then unplug my USB mouse, plug it in the back, and it stops working again. a little bit more give and take and it begins not working at all again. then i figure maybe if i install the drivers it'll work... i install the drivers and just for kicks i try to apply some changes to the mouse without it plugged in, it says plug the mouse in and try again... i plug the mouse in, click "apply" and... it works!! for like a minute then it freezes up. now i press apply, and it tells me to plug it in whether or not it is.
I am so confused. it doesnt seem to be a problem with the mouse, since it CAN work occasionally... I have read this entire thread and have tried everything i understand how to do (i'm afraid to mess with registry after last time.. lol).
what i want to know is, what direction should i be looking in to start climbing the steep slope of fixing this problem? mouse manufacturer? gateway? microsoft? is it a driver problem? power? registry?
it hurts my brain thinking about it. computer problems are the most frustrating crap ever!