While Touchpad and USB Mouse worked out of the box on my T61 running Ubuntu 8.04, I prefer the synaptics touchpad driver. Installing it was a breeze, but it stopped my USB Mouse from working.
While there are a lot of fixes are on the internet, it took me a while to get it to work, mainly because my Kernel was too new. Most fixes suggest to use the "AlwaysCore" Option in the "ServerLayout" section. Eventually I found this link which suggests to use "SendCoreEvents" instead. Now my xorg.conf looks like this: