Hello,

In case this is still an issue: I was having the same problem trying to
create a remastered version of Ubuntu by myself. The first time, it
worked but on the second time I updated the kernel (via apt-get) mouse
and audio would not work in the live system. It turned out that an older
kernel was still used, which when removing caused the live cd to fail at
boot: FATAL: Could not load /lib/modules/<kernel-version>/modules.dep:
No such file or directory

After a lot of searching and experimenting, I discovered that Ubuntu
9.10 now uses initrd.lz instead of initrd.gz for its initial ram disk.
Nearly all tutorials (mostly for versions prior to 9.10) I found told to
create the deprecated initrd.gz, which I did unknowingly that the live
cd only accessed initrd.lz.

So I went ahead, typed 'mkinitramfs -o /initrd.lz <kernel-version>' in
the chroot environment and copied the resulting in to the /casper
directory, that would later be incorporated into the .iso. Et voila, the
resulting image booted fine with mouse and audio working again. Just
make sure there is a directory <kernel-version> in /lib/modules/ to
generate the initrd.lz.

I hope this can be very useful to any with similar problems. It likely
is not a bug but merely a vastly disregarded change in the latest
version.

-- 
Mouse is not working on Ubuntu 9.10 PAE Kernel
https://bugs.launchpad.net/bugs/478442
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