According to a recent problem report at the forums http://camstudio.org/forum/comments.php?DiscussionID=503&page=1#Comment_1978
"Whenever I record my screen, I see the cursor just fine. I have the cursor settings to use the actual cursor and highlight it in yellow. However, when the video is completed, it shows not an arrow, but the blue "processing" circle, although it is highlighted. I've tried changing every setting I could find.
I'm using CamStudio 2.0"
"Nevermind, I found the solution. I had the switch on the mic "off" yet had CamStudio set to record audio. When I turned both on or off it fixed the cursor issue. Well, now if anyone else has this problem, they'll know the solution. :) "
My additional comments: The mouse cursor should still appear even if CamStudio is set to record audio and the mic is turned off. This one seems strange - I have not verified this behavior exists on my machines.