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Here's my current /etc/X11/XF86Config:
Section "InputDevice" Driver "mouse" Identifier "Mouse[1]" Option "Device" "/dev/input/mice" Option "Emulate3Buttons" "on" Option "Emulate3Timeout" "50"
Do you really have a 2 button mouse??? I suspect that if you have the emulate 3 buttons on then it can't detect you want to use the middle button at all! Try removing these two lines for starters! I have a Logitech Cordless USB Mouse (can't remember the exact model) and my /etc/X11/XF86Config has the following: Section "InputDevice" Driver "mouse" Identifier "Mouse_USB" Option "Device" "/dev/input/mice" Option "Name" "Autodetection" Option "Protocol" "imps/2" Option "Buttons" "6" Option "ZAxisMapping" "5 6" EndSection RikD.