I've had that problem in the past but I don't remember how I resolved it.
Sometimes that happens if you have disconnected your mouse, and then reconnected it without completely rebooting first. The sequence for connecting peripherals ("extra stuff") can sometimes be very picky. You can try disconnecting your mouse, turning off completely your netbook, wait a minute, then connect your mouse, then turn on computer.
As for your touchpad, check that the touchpad lock isn't set. Depending on the model computer, the lock can be a combination of two keys tapped at the same time. It's easy to happen.
I've also read that shutting down, removing the battery, disconnecting the power, and then rebooting, can be a fix.
I hope that you don't need to reformat. It can be done but it can also be a pain in the rear.
Is your netbook a Windows 7 Starter version, or do you have full Windows 7 OS? It should have a little sticker on it that will show the version that you have (unless you upgraded it yourself).