I recently had a problem like this, the cursor moves away from the
mouse position badly if you rotate the camera?

Try this instead. Could be badly wrong though.
Code:
function mouse_controll()
{
	temp.x = mouse_cursor.x;
	temp.y = mouse_cursor.y;
	temp.z = camera.z;
	rel_for_screen(temp,camera);
	
	c_trace(camera,vector(temp.x,temp.y,-4000),IGNORE_ME | IGNORE_PASSABLE);
	
	editor_raster_scale(temp.x,32);
}


I'll have a closer look later...

Any chance of getting the complete code (with models)?

"There is no fate but what WE make." - CEO Cyberdyne Systems Corp.
A8.30.5 Commercial