Mouse cursor jittery and broken after latest OS X update

I just updated my iMac (27", latest model, running Mountain Lion) with the most recent Software Update, and I'm now having big problems with my mouse.
The mouse cursor jitters wildly any time I move the mouse, jumping several centimetres back and forth (above-left and below-right; it doesn't seem to flicker randomly, just between those three positions. It flickers rapidly between the arrow cursor and the text selection cursor. When I stop moving the mouse, I will often get the wrong cursor (such as an arrow, or a text selection cursor on its side) instead of the correct text selection cursor. I've been stuck with the sideways text selection cursor for the entirety of this post, for instance.
This also happens in Photoshop when I'm working on images; the cursor will flicker between the arrow and whichever Photoshop tool I'm trying to use, and it will jitter wildly back and forwards. As you can imagine, this makes Photoshop unusable, which is a major problem for me.
It doesn't happen when I'm using stuff like the menus, or Control Panel, or the Safari bookmarks bar.
This happens whether I'm using a Magic Mouse via Bluetooth or a USB mouse, so it's not the mouse itself that's the problem.
I'm using the mouse on the same surface as I previously was with no problems (a wooden desktop with a matte finish), but the same thing happens when I try the mouse on other surfaces such as paper or a mousepad, so it's not the surface that's the problem.
Please help! This makes my Mac virtually unusable, at least for all the tasks I need to use it for. Any suggestions?

Hi EleanorJLH,
You may want to test to see if the issue persists in a new test user to help isolate the possible causes. You may find the following article helpful:
Apple Support: Isolating an issue by using another user account
http://support.apple.com/kb/TS4053
Regards,
- Brenden

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