Working in background mouse pointer keeps flashing in windows 7

Sounds like a background process that's running - possibly Window's Defender. You can try selectively removing processes using Task Manager until the problem stops, then either uninstalling that software or reconfiguring it.

Absence of the problem in Safe Mode seems to confirm this since not all processes that launch at normal startup will be running in Safe Mode.

-DdN

I had thought to try this but was apprehensive about stopping processes. They are not named very usefully.

What should I stop last, or not at all?

Anything that is in the startup folder in your start menu should be safe, also any applications that you know are those that you have installed.

Realistically you can't break your computer or Windows by stopping processes under normal circumstances, but you might force a reboot if you stop the wrong thing.

Safest to kill would usually be any that are running under a local user account (such as the logged-in user). Many system-critical processes will not be killable.

As I'm not a W7 user I can't say exactly which processes are most likely to be the problem or any that you should definitely leave alone, but I've seen a similar issue in XP and found a single process to be the problem.

If you see any single process is using a lot of CPU in Task Manager that might be a good one to target also.

-DdN

I tried closing down the many processes getting right down to those which would not be turned off.

I then remembered a recent change I made which was to install the IE9 Beta.

I removed IE9 and the problem was solved.