Perhaps your other mouse does not have a visible LED?
A laser mouse, for example, might not have any visible light at all.
A non-working mouse will not move the cursor. Are you sure your mouse doesn't work at all?
Good test for the mouse - plug in your Apple mouse, and make sure it works. Leave it plugged in, and then add your other mouse. Can you move the cursor with the new mouse? Check in your System Profiler/USB tab to see what devices appear. You should see 2 different mouses (mice?)
For the Option-boot screen - be sure to disconnect your ethernet, and any external hard drives (including USB flash drives and USB hubs), so the only drives are whatever is inside the eMac.
Boot to Open Firmware (restart while holding Option-Command-O and F, that's the letter Oh, not the Zero... ) You'll see a few lines of text.
Type reset-nvram, then press enter. (there's no spaces in that reset-nvram
You should get an OK as a response.
Type reset-all, then press enter.
The eMac screen will go black, and you probably will hear the boot chime sound, so hold the Option key when the screen goes black. When you see the two arrow icons, you can release the Option key. If you have a valid OS X system installed on the hard drive, you should see an icon for that drive appear. If your Ubuntu liveCD is in the CD drive, you should also see that as as icon, probably with the Linux penguin on that icon (I think)
Do you get that response? Wait for the little clock cursor to change back to an arrow, and select the icon for the drive that you want to boot to, then click the right-facing arrow icon to boot to the selected system.
Works good?