It seems to be a common problem that VirtualBox doesn't capture the cursor when you try to install a Windows Guest (WinXP in my case). I found the solution and thought I would post it here for others to see.
Briefly, what worked for me is to go ahead and install XP even though I'm unable to use the mouse. I found it was possible to complete all of the installation steps using the Tab and cursor arrow keys.
Once XP was installed, I could run XP and use the Devices toolbar menu to install the Virtual Box Guest Additions. This involves two steps: first mount the Guest Additions .iso file from the Device menu. And then install the Guest Additions. When you're done, shut down XP, log out and back in, and you'll be able to use the cursor in the VirtualBox window normally - when you move the cursor into the window you can use the mouse to work with Windows XP as expected.
It's a good idea to consult the VirtualBox manual while completing these steps - especially the part about being sure you have the proper software installed that VirtualBox needs - sorry, I forget what they're called, something like SDK and DKMS?? (I'm running Windows this morning and don't have access to the manual.)