It just means using the windows based cursor rather than one drawn by the application.

By default this is what you use in XNA Framework... unless you are drawing your own cursor its the windows one.

Show it with IsMouseVisible=true; on the game object

I admit to not knowing how it works though but its pretty easy to show the lack of responsiveness - draw a sprite at the current mouse position and see how it lags behind. I suspect if has something to do with the way DirectX buffers its display to the mouse coordinates are 1 (or more) frames behind.

If you find a way to do this let me know :)

http://forums.xna.com/thread/12536.aspx

Why use a custom cursor? I assume becuase you want to make it look different. Since you are using the mouse you are already windows only for that code path - so why not use Windows APIs to change the mouse pointer? YOu can have multi coloured cursors (though I don't know how much variation in size you can have).

Couldn't find anything on how to use a custom cursor via windows api apart from some very rudimentary black and white cursors.

Edit: your reply prompted me to do another search and a found the way to do this. Hurrah! I wonder if I can set the drawmode to additive blending as well..

In case OP is interested, here is the code:

// create any bitmap
Bitmap b = new Bitmap(25, 25);
Graphics g = Graphics.FromImage(b);
// do whatever you wish
g.DrawLine(new Pen(System.Drawing.Color.Red), new PointF(0, 0), new PointF(25, 25));
g.DrawLine(new Pen(System.Drawing.Color.Red), new PointF(25, 0), new PointF(0, 25));
// this is the trick!
IntPtr ptr = b.GetHicon();
Cursor c = new Cursor(ptr);
// retrieve the form from this window's handle and attach the cursor:
Form.FromHandle(this.Window.Handle).Cursor = c;
this.IsMouseVisible = true;

This should help:

http://msdn.microsoft.com/archive/default.asp?url=/archive/en-us/dnaraskdr/html/askgui11182003.asp