I read something about a patched version of LemEdit that fixed the serial mouse problem, but it looks like it was only hosted on camanis.net, and that's down.
You're in luck, I thought I had it on another computer that I don't have with me right now, but turns out I do have a copy of LemEdit3.exe with me at the moment. I've attached it to this post. Hope it works for you! (I haven't used LemEdit in ages.)
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and Microsoft had the absolutely brilliant idea to nuke DOS program support somewhere between here and XP
Actually, support for DOS has been slowly worsen even since XP; on my old XP laptop, running Lemmings directly under Windows result in completely garbled screen when in a level. I'd expect by Win7 the only DOS programs that still work are the ones that are text-mode only, in other words anything besides games.
The bane of DOS programs, especially games, are that they expect direct and exclusive access to all hardware on your computer, including the video card, sound card, etc., which obviously doesn't work as-is in today's multitasking environments. Also, many of them are designed for old video card and sound card standards that might not even be supported on modern hardware. The only real way to maintain compatibility for these sorts of programs across the breadth of different PC hardware out there is a good emulator, and it makes sense that MS isn't too terribly invested financially in this area of computing (though it does offer VirtualPC).
Fortunately there's DOSBox to step up and fill in the void.
[Incidentally, chances are good that the serial mouse problem will occur even if you actually install DOS on your computer and run LemEdit that way. USB simply didn't exist back in the ages of DOS and LemEdit, and if LemEdit attempts to directly talk to mouse hardware (instead of through a more generic interface that exists even in DOS) then it makes sense that it would only work with one type of mouse.]