Well, if you have a slow processor, your USB mouse is going to have some problems over PS/2. With PS/2, the data rate is much slower...and for most people the "feel" is indistiguishable. However, if you're like more or one of the other countless people who require very sensitive, fine input devices, the USB connection is the only way. I can turn up the optical rate of my mouse and get much smoother, more responsive results, and I can only get those high speeds through USB. Plug that sucker into PS/2 at high speed, and it's doomed.
As for Windows popping up icons and balloons each time you connect something, well, that's most customizable. You can turn the balloons off, as can you most of the sys-tray icons. Personally, though, I like knowing that Windows has detected what I just plugged in without having to go open MyComputer or something to see what happened.
I never use out-of-box drivers for any device I buy. Nearly all of the time, those drivers are out of date or were shipped before some major bug was discovered and thus don't work. If Windows can't detect and run the device with its own driver database (rare) then a quick trip to the manuf. website usually sorts things out.
On your machine, though, TheMajor...I can understand why you have problems with USB.