It works! Yay!
After 4 months of being confused... Delphi's way of handling memory has finally dawned on me.
I was sure I would do it in the end. :)
This software is pre-alpha, the grunt of the program (the gesture recognition part) works well, however the program needs further development to become a useful utility and not just a novelty. I have commented out all references to the mousehook DLL, I expect this to work in the next version.
Download it now! :)