Seems like my theory was right, I used an old usb hp mouse from 2009-ish, and works fine right from the bios. Problem is that there is some lag from when i move the cursor to where it needs to go

You don't want to use a USB mouse (or Keyboard) under native DOS, it causes all kind of issues.

USB mouse/kb emulation by bios was though as a method to have basic control of the computer before entering Windows, like the bios settings itself or system recovery/boot options. It seriously hammers the CPU.

Why would you need basic _mouse_ support for the BIOS setup ? Any pre-boot environment using much less requiring the mouse would be the exception....

PS/2 mouse emulation is actually for backwards compatibility with DOS and other PC OSes, like every other feature of the era. If moving to a USB mouse meant losing all backwards compatibility, no one would have done it. Of course this wasn't actually required because anyway USB was slow in adoption, but the ideas were there.

The "emulation" is normally so complete it will even fool a protected mode OS. "Hammers" the CPU I think is too much of an overstatement.

Remember also that you might find that not all motherboard USB ports are equal. There are boards where there is added on USB support beyond some base level of 2 external and 2 internal ports. In most instances this is where chipsets or the I/O solution didn't have native USB 2.0 and an "onboard" USB expansion card exists more or less, with an additional chip. I think it was seen on some models trying to offer more than usual amount of external and internal ports for 1.1 too.

What this boils down to is that some of the ports might support legacy mode for peripherals and the others don't. Usually the ports closest to the normal position of the PS/2 ports, whether it has them or not, are the ones which are more "native" and will do legacy support. Then any that are off to the right side of the i/o plate, maybe the other side of sound and game might be additional ports on another chip. They usually do it like that so they can leave that header stack off on a cheaped out or OEM board version. So rule of thumb then, to get legacy KB and mouse, plug in nearest to where normal KB and mouse would go, or to your base level USB 1.1 ports if you know which those are.

If these ports are too aged and worn or mangled, you either need to perform surgery on them or determine the "native" header and use that with a fresh riser cable and ports.

The quality of legacy support does vary widely though, it can be close to seamless, meaning you can't tell difference between USB and PS/2, or it can be laggy, or during some period of "legacy free" madness from about 99-2003 absent altogether, it almost disappeared entirely before making a comeback, but even with that comeback it wasn't universal. Then some implementations when it came back were poor efforts.

It's a bit confusing in particular where you get a series of motherboards and it goes 1998 models, okay, 1999 models better, and you get all excited to get a socket A or 478 board from that manufacturer and it has declined to terrible or gone altogether. Whereas another manufacturer was bad at it in late 90s but illogically better on their later stuff when everyone else was poor.

For stuff going into the 2000s, everything had floppy support initially I think, but as the years went on, the ones that kept floppy support were usually the ones with better legacy USB support.... that again is not guaranteed but the odds are in your favor more for finding a good board if you ignore everything that doesn't have floppy whether you intend to use it or not.