Most notebooks (all?) have a built-in mouse-device (like a touchpad). The PS/2 mouse connection is shared with an external device. Now the point is that the built-in device only supports the PS/2 protocol and a wheel mouse needs IMPS/2 to let the wheel work. What would be very, very nice is to have XFree recognize the type of plugged mouse (PS/2 auto detection does at least not work for me). I've tried this in Windows 2000, where it works OK on my notebook, so it should be possible. What is needed is mouse plug/unplug event detection, some way to determine the actual mouse protocol supported and hot-change of the used protocol.
Indeed, that is what would be nice to have in the long run, however that isn't a simple hack that can be added to the X server overnight, but rather a new major feature. The XFree86 team has this on their roadmap for XFree86 5.0. Once it is complete and released, it'll be available in a future release of Red Hat Linux as well. For a list of future XFree86 design goals, you can view: http://www.xfree86.org/~jg/Projects.html
OK. I contacted the XFree guys. Maybe I can help to speed things up as I can help with the low-level stuff. A short look at the matter makes me feel that it is "only" an XInput matter. So maybe it can be still in an 4.x.x release. It would be nice if Red Hat would help in some way too.