Theory is that /etc/init.d/gpm first sources /etc/sysconfig/mouse and starts inputattach reading events from the real device sending them to /dev/input/mice then sourcing /etc/sysconfig/gpm changing $DEVICE and $MOUSETYPE for reading from /dev/input/mice. /etc/init.d/gpm from gpm-1.20.1-57 sources both /etc/sysconfig/mouse and /etc/sysconfig/gpm at startup causing inputattach to read from non-existant /dev/input/mice.
current version does away with /etc/sysconfig/gpm (does not detect it or load it). sources /etc/sysconfig/mouse only (if it exists), then fills in the MOUSETYPE and the DEVICE only if they have not already been set by /etc/sysconfig/mouse, giving it the preference.