Very nice.
I've tested this build's cursor mode. I'll provide my impressions as there doesn't seem to be much feedback to date.
Impressions: It seems this implements an invisible cursor with a box as a boundary, and the coordinates control the magnitude of the turning input.
Being able to see the cursor would help a lot. In the ideal scenario, this bounding box should be of a comfortable size given the players screen resolution, screen DPI, and distance from the screen. So a way to control the size of the box would be useful. Sensitivity, in this case distance the visible cursor moves for mouse input, would be useful too.
Further feedback: another possible control system would be to have a displayed cursor which could be moved anywhere on the screen. Moving displayed cursor would turn the ship until the ships velocity matched the displayed cursor. The ship's velocity would need to be indicated by a marker, instead of the center of the screen, and might not be visible unless the player turned around if the player was flying backwards like in a mod like Diaspora. As the cursor comes closer to the velocity marker, the turn rate could be reduced to allow for fine adjustments.
Other improvements:
One thing I've had an issue with is not being able to increase mouse sensitivity high enough. I'm not sure if there is a way to do this that I'm unaware of. Ideal sensitivity is one where players can move the mouse the required distance to engage in dogfights while keeping the distance the mouse moves within comfortable limits. For players with a more restrictive palm or fingertip grip the current FS2 maximum sensitivity can be too low.
Invert mouse might be useful for anyone who switches back and forth between flight sims and space games because of muscle memory.