I tested out your code (added .hide() statements) and found also that this doesn't work; I've logged a bug in our system, thanks for the catch. If you create for example a button that you press to execute the same code, it does work, so it appears to only fail when it is an application component creation event.
Hope this helps.
I'm having a similar problem. I'm using Flash CS4 to create an AIR 2.02 project.
Mouse.hide() doesn't work on the Macintosh.
I did find a work around here. (http://blog.formatlos.de/2008/11/16/air-hiding-the-mouse/) which seems to work if you start the AIR file by double clicking it.
However, if you set the AIR file to automatically start as a login item then the mouse cursor doesn't hide.
I've tried this on OS 10.4 and OS 10.6 and its the same. It all works fine on Windows.
This is a critical bit of functionality for all kiosk applications so if anyone has any other suggestions or work arounds I'd be keen to hear them.
Ok, here's an update on this. The problem seems to happen because the mouse cursor is in the top left corner of the screen on startup.
If the cursor is here AIR can't hide it. If I manually move the cursor somewhere else on the screen the fix given seems to work.