I ran into basically the same issue:
Problem Summary:
While playing minecraft or other game on a virtual machine guest OS, the mouse control becomes so bad that it is unmanageable, while the same game on the host OS runs without issue.
Host OS: Windows 7, 32bit
Guest OS: Windows 7, 32bit
VMware product: VMware Player 5.0.2 build-1031769
Details:
When I first setup a VMware and ran minecraft, I had a severe cursor problem. Once I moved the mouse, the navigation of the screen would continuously navigate in that direction until I returned my mouse to a theoretical center. With any kind of sensitivity, the effect was to almost instantly bounce between entirely up or entirely down, like in this video:
Minecraft in VMWare Player XP Pro Glitch - YouTube
The key difference between the host OS running the game and the guest OS running the game is the programmatic setting of the cursor. The host OS will constant reset the cursor to the center of the screen, but the guest OS never resets. I'm guessing this is because the VMware driver is overwriting this control so that the guest OS cursor tracks the host OS cursor.
Workaround Solution:
It seems advanced or paid services like Workstation allows 'configuration for games' with the feature in Edit -> Preferences -> Input -> Optimize for Games -> Always, but no such option exists on the free VMware Player. The only solution is to bypass the VMware driver somehow, and the easiest way I found was to reinstall the mouse with a Standard PS/2 Port Mouse driver, and disable the other virtual VMware USB pointing devices.
I don't know if there is an option in VMware Player that I am missing? Or maybe a feature complete mouse driver is part of the value proposition for Workstation and other paid products?