Just curious as to the exact distro and version, e.g. Ubuntu 7.10 (with Xorg 7.3 requires some tweaking). A solid solution to your issue is this suggestion in the gaming section of the Rel Notes:
To customize the virtual machine's mouse settings for playing games (ignore this), use TextEdit to make the following changes while the virtual machine is powered off:
In your home directory, add the following line to the end of the file ~/Library/Preferences/VMware Fusion/preferences:
pref.motionUngrab = "FALSE"