Okay, first things first:
Use xf86config at the command line to fix your mouse problem. I had a few problems with Xconfigurator and it wouldn't configurate my mouse right so I would have the same problem you're having with it. That should handle the mouse problem.
Now, this is the trickey part:
Edit the XF86Config file. Near the bottom you'll find an entry that says "Screen". Below there (and this is close to the end of the file) you'll see your screen settings. You'll be looking for this, "Virtual 800 600". Just put a number sign (#) in front of every entry of "Virtual XXX XXX" so it looks like this, "#Virtual XXX XXX". That will cause the program to skip over the Virtual desktop settings and, thusly, not creatting a virtual desktop! Taa Daa!
I am running Redhat, and X, on a VGA monitor (640x480 only) but X insists on making an 800x600 virtual X. How do I make it run it 640x480 alone? Also, I have a microsoft-compataible 2 button mouse, no matter what I do, I cant use the mouse in Xwindows, it is like it is not plugged in. Please help!