I have found that PS/2 works a lot better. USB was causing some annoying backspin in tempest, even with the sensitivity lowered to 7% in mame, and acceleration turned off in windows.
I have also found this to be true.[EDIT] This is, for me, only minor and doesn't really occur during gameplay in tempest. Even then it only occurs in 125Hz USB mode - PS/2 and 250Hz USB don't exhibit this trait. See my next post regarding these edits in more detail.[/EDIT]
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I've done a bunch of testing in Win XP with this. Other OS's have different mouse update speeds, so different approches may be needed. Givens: enhance pointer precision disabled, mouse speed set to middle. Microsoft IntelliMouse Optical connected via USB the entire time. XP installation has never had a PS/2 mouse connected to it before, nor have I touched the settings. 'Extra' IntelliMouse drivers not installed / XP installed the basic built in IntelliMouse drivers installed when it was setup.
USB mode does cause backspin during gameplay. It is easily noticed when entering initials in Tempest, as it only moves two to three letters per one revolution of the knob. So when you try to get to the middle/end of the alphabet, you give it a good spin and the letter just bounces between a couple/few. Also noticed when spinning around the tube fast - it will just flutter back and forth between a few.
In Warlords, I would also see backspin during gameplay. [EDIT] I believe that I may have had my tempest sensitivity set too high. When I retested with Warlords I didn't see this.[/EDIT]
To test to determine backspin, in the windows desktop, turn the pointer speed to minimum. Then give the spinner a spin. For me, a good spin will backspin and make the pointer go the opposite way about an inch, then go the correct way 4-5 inches. Another test I did was set the pointer speed to middle, and turn the spinner left. The spinner should butt up against the left edge of the screen and stay stuck (like glue) there. Once there spinning it left again should not cause the pointer to move - if it does it is backspinning. It didn't stay stuck there indicating backspin.
I then decided to give PS/2 mode a whirl. I got my extra 'green adapter' (the Microsoft branded USB to PS/2 adapter that came with my IntelliMouse Optical. Shut down XP. Plug in and restart. New hardware found - installed. Restart required. After restart, spinner didn't work. Restart again, it works. I then retried my tests:
Turn speed to minimum - NO backspin at all! Sweet.
Set speed to middle - pointer butts against left edge and sticks like glue! Sweet!
Tempest - sweet!
I did some checking into all of this and have found out some things. I downloaded a program called "mouse rate checker" v1.1b from:
http://tscherwitschke.de/mouseratechecker.htmlThis program will tell you the update rate of your mouse. Using (moving the pointer with) my MS mouse via USB reports ~124Hz. The TT2 in USB mode also reports ~124Hz. Now here's what's interesting. The TT2 in PS/2 mode reports ~235Hz. (FWIW - the advanced mouse properties are set to the defaults - rate is set to the 100Hz, input buffer length = 100, fast initialization enabled.) hmmmm
I'm theorizing that windows XP adapts to the rate required. Perhaps as it gets data packets from the mouse, it detects the data getting close to the maximum, and speeds up the rate preventing overflow. This higher rate will cause the movement data to be less (per update interval) and not overflow.

Also, using the TT2 in PS/2 mode also doesn't allow (my) XP to shut off the monitor via Power Options (it always did before I plugged the TT2 into the PS/2 port). Perhaps windows is thinking that the TT2 (mouse) is moving so it doesn't allow the monitor to shut down.
Next I decided to change the USB mouse update rate. I found Mouse Rate Switcher:
http://www.softpedia.com/get/Tweak/System-Tweak/USB-Mouserate-switcher.shtmlI used it to set the update rate to 250Hz. My USB MS mouse reports ~250Hz. The USB TT2 reports ~250Hz. No backspin. Tests good. Allows windows to shut off the monitor.
My advice is if using the TT2 with XP, use PS/2 or patch the USB rate to 250Hz.
With other OS's, probably the best way is to use USB and patch the rate. Older MS OS's have slower PS/2 speeds and I'm unsure if you can speed those up.
Good luck,
Rick