Here is what I found.... Go to:
In the section marked "Other Accessibility Options", de-select the check box labeled "Always display the keyboard selection cursor"
This fixed it for me.
Hope this helps.
For anyone else searching for this in later editions i.e XI for example, this default behavior can be controlled by the "Touch Mode:" option under Preferences > General. Of course, making this change modifies the behavior of Adobe Reader on machines with a touchscreen (refer to here for more details)
Set to "Never" the default tool becomes the Select tool
Set to "Auto" the default tool becomes the Hand tool
Hope this is useful to someone else, as it was a constant frustration for me until I worked it out.