NOTE: Canonical has fixed this issue with the release of 10.10
By now most Lucid users know of the issue when using compiz in Gnome in Lucid Lynx that the selected Cursor Theme does not show properly. Well I researched the issue and found the way to fix it. Though the total process is extensive it does work.
Before anything else make sure the theme you wish to use is located in "/usr/share/icons/" this may not be absolutely necessary but I since you're setting a system default its best to do so.
Step One - Set the System Default Cursor Theme:
To change the cursors edit as root the index.theme file using the following command "gksu gedit usr/share/icons/default/index.theme"
Change the line "Inherits=themename" by changing the current theme name to the name of your desired icon theme. Logout and login again and your new cursor is in use.
Step Two - Set gconf to use the desired theme:
Use the command "gconf-editor" then navigate to desktop >> gnome >> peripherals >> mouse and then edit the line cursor_theme and using the actual folder name of your cursor theme.
Step Three - Set Compiz to use the desired cursor theme:
Open up the CompizConfig Settings Manager in the control center and under General Options set Default Icon to the desired Icon Theme.
That's it, a bit of a PIA but it works and if you change your Cursor settings you will have to adjust all this as well, unfortunately.