I recently installed Edgy in a VMware Server 1.01 VM at work, and discovered that because it comes with Xorg 7.1.1, the vmmouse driver that gets included with the tools package doesn’t get installed as part of the tools install.
But it turns out the Xorg 7.0.0 version that we do package works fine with Edgy’s Xorg. All you have to do is, copy vmware-tools-distrib/lib/configurator/XOrg/7.0/vmmouse_drv.o to /usr/lib/xorg/modules/input/ and then in your /etc/xorg.conf, load the “vmmouse” driver instead of the “mouse” driver (don’t forget to restart your X session) and that should do the trick.