The video driver for the device must have support for a hardware cursor, or at least an 'emulated' software cursor. There are routines in the driver such as MovePointer which are called to manipulate the cursor position.
Since the Pocket PC relies on the stylus for input, the routines to display and move a cursor are not needed. They are usually "stubbed" - meaning there is just an entry point followed by a return statement. This saves valuable ROM space in the final OS image.
The USB Mouse driver tracks the movement, informs the GWES about the motion so that WM_MOUSEMOVE messages get generated, and also calls the MovePointer function in the video driver. As you have discovered, calling the stubbed function in the video driver does not do much.

So the bad news is that you will most likely have to write a video driver to get the support you are looking for. If you want to write your own shell, you could use one of the graphic libs to handle the cursor display; but there goes the "Today" screen!
HTH,
Ken McCaw
My two cents - tax = no sense