Yes, when a live CD boots, it creates a temporary / file system in the
memory of your computer that contains most of the files you would expect
in a typical install.

Sorry to make you do this by hand, but while you are at it, could you also:
1. Alt-F1 to open the panel menu, navigate to the `Accessories` section, and 
select `Terminal`
2. Give us the output of `grep -i "mouse" /var/log/Xorg.0.log` (case-sensitive, 
no `quotes`)

Thanks

-- 
Blue lines across boot screen & no mouse movement
https://launchpad.net/bugs/74286

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