1st I'll note a bit of strangeness: I can now only successfully "startx" (note this is after boot up from a CD with no persistent storage) if I chmod .xsession to something like 777 (ie., something the "tc" user can execute directly). Maybe that's what occurred above for the cases I said where startx failed - it seems the contents of the Xvesa line is irrelevant with respect to "startx" failure.
One other bit of strangeness is that with my USB mouse (a Logitech 2 button trackball), it makes no difference what you put in for the "-mouse" part, or leaving it out entirely. "-2button" _is_ required for proper copy and paste, however.
Maybe the irrelevance of the "-mouse" part is a quirk of my hardware, but I think that it would be a good idea to add in 2button options for each mouse type, where lacking, in the last menu.
[Mind you, I never saw "xsetup.sh" until I went looking for it ... . Looking at the "startx" script a bit, it seems there can be a situation where there is no .xsession file and so "xsetup.sh" is spawned, or if the user explictly requests xsetup.sh with a boot parameter]