I would first see if unplugging both devices (keyboard and mouse) makes the problem go away (assuming your BIOS lets you boot without kbd/mouse, some do, others require you to set an option to allow it).

Then I would see if replacing one or both of those bits of hardware solves the problem. Or, alternatively, seeing of those bits of hardware work when plugged into another PC.

Although from your description of the sequence of events, you are right to suspect a software issue with the CD update. You just need to be absolutely sure you've ruled out failure of the hardware first (and, as others have said, ruled out a swapped kbd/mouse).