When people as what Nvidia driver you're using, they don't mean what Device Manager shows you. What they mean is what ForceWare version do you have. Device Manager picks out just one file among many that Nvidia puts on your system. ForceWare is the whole package.
It looks like you've got version 181.20. Usually the last five digits of some of the DLL file names correspond with ForceWare version.
Here's how to know for sure:
1. Open your Windows Control Panel
2. Double-click on Nvidia Control Panel
3. In the Nvidia Control Panel main window, click on System Information at the lower left. In the window that pops up, you'll see the ForceWare version listed.
So you know, the 175 series is the most SL-friendly Nvidia driver series to date. 175.19 works great with the 8800 GTX. (I've got two of them in my desktop.) I'd suggest you install that version. Here's how. This will take you 5-10 minutes, total:
1. Download the correct 175.19 ForceWare for your OS. Don't run it yet. Just download it.
XP 32-bit:
http://www.nvidia.com/object/winxp_175.19_whql.htmlVista 32-bit:
http://www.nvidia.com/object/winvista_x86_175.19_whql.htmlVista 64-bit:
http://www.nvidia.com/object/winvista_x64_175.19_whql.html2. Download DriverCleaner from drivercleaner.net. It will cost you $10. It's easily worth 10 times that. It MUST be used every time you change driver versions. Otherwise, you're 99.99% guraranteed to end up with problems. Don't run it yet. Just download it.
3. Uninstall your current Nvidia driver, via Add/Remove Programs (XP) or Programs & Features (Vista) in your Windows Control Panel.
4. Reboot to Safe Mode. Do this by repeatedly tapping F8 as the computer is first starting up, to get to the Boot Manager screen. Pick Safe Mode from the list.
5. Run Driver Cleaner.
6. Reboot normally. (Note, once Windows has restarted, it may offer to install a driver for your video card automatically. Don't let it. Cancel out of the wizard.)
7. Install ForceWare 175.19 now.
SL should be much happier now.
If that doesn't solve the problem, then the next thing I'd look at is your mouse driver. Anything unusual there? What kind of mouse do you have? Does it require a special driver?
I'd also look at your desktop themes. Any special mouse cursors in play? If so, get rid of them. Keep it simple.
If you have Vista, are you running Aero? If so, don't. It causes problems for SL and other 3D applications. If you're using Aero because you hate the Vista Basic theme (most people do), download a free app called VistaGlazz. It will patch the relevant system files to allow use of third party themes. DeviantArt has some good ones, or you can make your own.
If none of that does it, I'm stumped.