With BeatrIX, a Debian based distirbution, I just recently upgraded the kernel (using Synaptic - but the results were the same using apt-get), from 2.6.7 to 2.6.12-7-686.
Both the mouse and touchpad on my laptop stopped working.
On the same laptop a while back, I went from 2.6.7 to 2.6.12-6-686 with no problems.
After this new problem, I did a clean installation and today upgraded from 2.6.7 to 2.6.12-8-686 and again the mouse & touchpad do not work.
I think it is something to do with the modules, as the contents of the respecttive module files are different:
modules-2.6.7
8250
ac97_codec
af_packet
agpgart
ali_agp
amd_k7_agp
amd64_agp
apm power_off=1
ati_agp
ds
e100
efficeon_agp
evdev
ide_scsi
ieee1394
intel_agp
intel_mch_agp
ipv6
joydev
lp
md5
mii
nvidia_agp
ohci_hcd
ohci1394
parport
parport_pc
pcmcia_core
reiserfs
rtc
sbp2 serialize_io=1
serial_core
sis_agp
snd-pcm-oss
sound
sworks_agp
tsdev
uart401
uhci_hcd
usb_storage
usbcore
usbhid
via_agp
via82cxxx_audio
via82cxxx_audio
yenta_socket
and
2.6.12-8-686
ac97_codec
af_packet
agpgart
apm power_off=1
bitblit
capability
cdrom
cfbcopyarea
cfbfillrect
cfbimgblt
commoncap
e100
evdev
fbcon
font
i2c_core
i2c_viapro
ide_cd
ide_core
ide_disk
ide_generic
ide_scsi
ieee1394
mii
mousedev
ohci_hcd
ohci1394
parport
parport_pc
pcmcia
pcmcia_core
processor
reiserfs
rsrc_nonstatic
scsi_mod
softcursor
sound
soundcore
tileblit
uart401
uhci_hcd
unix
usbcore
usbhid
vesafb
via_agp
via82cxxx
via82cxxx_audio
yenta_socket
(I have rearranged them alphabetically, to hopefully help with comparing the lists)