Input devices freeze intermittently

My mouse and keyboard freeze intermittently, so my mouse just freezes and the keyboard sometimes receives no input, sometimes acts like I'm still holding down the last button. The freezing happens about every 5 sec. when it's real bad and lasts 3-4 sec. (yes that’s more time with a frozen mouse then a working one)...
This has happened to me twice now and both times were right after playing Bioshock. The first time it went away after a reboot, but this time it continued after the reboot. I watch task manager on my second display constantly and there is no common spike when the freeze occurs, sometimes CPU usage is high, and sometimes it's low.
Now that I've started posting though is seems to have stopped, but trying to register took a long time with the constant freezing. My keyboard and mouse are both ps2 connected to a USB converter (my mother board only has 1 ps2 connector).
Any ideas?

Drivers are up to date and I'm using a cheap logitech ps2 mouse and the keyboard from my original HP pavillion a630 (with window drivers, not HP's). There are no errors in my event log (ether system or application) around the time this was happening, but there is a warning...

It's happening again, this time after playing EVE (an online game). CPU usage has gone above 50% for a while and my mouse is still freezing every now and then. No warnings or errors in any log since this morning.
This is really getting annoying, I can't play any games on my GAMING PC.

Your mention of CPU usage makes me think that there is a possibility that there is a process that is interfering with operations overall, not just the mouse and keyboard. Duplicate the situation and then use either the Task Manager or Process Explorer to determine exactly what the process is, and what program it belongs to. Eliminate the problem by updating, reinstalling or just uninstalling the problem progam.

It's at it again, only this time I was just using paint! I restarted, stopped all background programs (including gadgets), and moved my mouse in a circle to see if it was still freezing, it was...
I took a snap shot of my processes and services using powershell.
I really don't want to have to go back to XP after spending 2 weeks getting my PC set up how I like it...

Don't give up so easily. It takes times to get accustomed to a new OS. The processes list did not show as high of CPU usage as you have had, so it would be difficult to pinpoint a particular problem, but it is clear that you do need to do some house cleaning. You have a bunch of unnecessary processes running. The list is too long to give you a specific rundown, but just off the top, chop to 2 instances of Jusched, the GoogleToolbar Notifier. Get rid of any process that autoruns, unless either you or the system really need it continuously. Google each and every process in the list to identify it's source, and if it isn't critical, get rid of it. If nothing else, that will make diagnosing any remaining problem much simpler, and the system run healthier.