you can try this:
cursor.x = mouseX + 1;
cursor.y = mouseY + 1;
as i`m not sure if this is actually the same as offsetting the thing inside the movieclip.

otherwise what i was writing about is how to tackle the rollover/rollout problem, it shouldn`t really happen in your case at all.

one thing though, is there any specific reason why you`re setting the cursor to visible on every mouse movement?

Ive had the same problem, I have the MouseMove listener registered to the stage and the custom cursor tracks the coordinates of the mouse in the MouseMove handler function. I was still getting flickering occasionally over movieclips behaving like buttons.

I tried offsetting the reg of the movieclips inside the custom cursor MC and this has greatly reduced the frequency of the rollout event being fired, though it still happens now and then.

Im not sure if I understand what you were trying to say in the ‘workaround’ paragraph, would you be kind enough to have a look at my code to see if im on the right track?

Thanks Dan

stage.addEventListener(MouseEvent.MOUSE_MOVE, mouseMoveHandler);

initCursor();

function initCursor()
{
cursor.mouseEnabled = false;
Mouse.hide();
addChild(cursor);
}
function mouseMoveHandler(event:MouseEvent):void
{
cursor.x = mouseX;
cursor.y = mouseY;
event.updateAfterEvent();
cursor.visible = true;
}

In (perhaps)similar instances I would have the flash load in dynamically use swfobject 2. This way it would only load when required, and the flash is acually embeded in an elegant manner as opposed to the object/embed method.