1) The Windows cursor is appearing (with the in-game cursor) on the MP KVM window on the primary. I have the secondary connected to the MP KVM with the Ethernet cable, but also have the secondary connected to a flatscreen monitor (for troubleshooting this) via its video out port in back. The flatscreen (direct video output) shows only the in-game mouse pointer.
2) No physical mouse attached to secondary PC. Doing so causes mouse pointer to lock in place and glitch, understandably.
3) I'm using KVM mode, unless I'm mistaken. I open up a MP KVM window on my primary PC, to view/control the secondary.
4) I've tried both with/without Fake Cursor Support, and the Windows mouse pointer appears regardless. First Person Shooter type games often show two cursors... a Windows one, and the in-game pointer. Desktop, software, and other games seem to work fine. Just some of the first person games have some form of issue.
I'm experiencing a number of issues currently, which are outlined in forum posts from the same day as this one. Some games will have the two pointers, but will react differently (some have an in-game pointer lag, but they nonetheless both end up in the same spot, and are usable... others have both, but they are badly offset and glitch... others (first person games) have a Window mouse pointer (when there shouldn't be) and when that pointer hits the edge of the screen, you can no longer turn your view (even if you raise the mouse, reposition it and sweep again, as you normally would when you run out of desk space).
Also, it usually takes me three tries to get MP KVM working, as each time some aspect is not functioning right (mouse invisible, mouse visible but not interacting, or screen is black).
I've also posted on the Steam forum (KVM vesion), which summarized ALL of the issues in one single post, which you might want to check out to get a good overview.