You can test this yourself by doing the following. I used DREAM's HUD & MENU module to test this.
- Start DFU with the DREAM module installed and activated. Once it reaches the DFU startup config menu, you will see that the mouse cursor is using DREAM's version. Make sure the HUD & MENU module is activated.
- Launch Daggerfall. Once you reach the main menu, the mouse cursor will still be DREAM's replacement.
- Restart DFU then deactivate the HUD & MENU module. After you do so, you will notice that the game is still using DREAM's replacement cursor.
- Launch Daggerfall. You will now see that the cursor is invisible. You can still click on things but obviously, it's difficult to know where the cursor is.
- Exit DFU then completely uninstall the HUD & MENU module. Relauch DFU. After you do so, the game will be using the default Daggerfall cursor in the config menu.
- Launch Daggerfall. The game will still be using the default cursor.
Edit: Forgot to mention that I'm using Windows 10 x64 if that makes a difference though I suspect the issue is something in the modding API.