Recollections from two people who worked at Xerox:
Just looked at your collection of old mice - very interesting. I wanted to answer a question that was raised, and correct a wrong guess about the Star optical mouse. The Star optical mouse worked on the same principle that appears to be used by the current Microsoft optical mouse, and did not require a special pad. It was based on research done at PARC by Dick Lyon. Some time around 1980, Lyon built a prototype optical mouse whose principles of operation were based on the human visual system. It sensed movement by detecting movement in the visual texture presented to it. These mice were supplied with pads that had a printed dot pattern, but they would work with anything that had a contrasting texture - phone book pages worked quite well, and blue jeans sorta worked. These are pretty much the same conditions required for the current Microsoft optical mouse. Dick Lyon has been at Microsoft research for several years now, so the MS mouse may not be a case of parallel evolution at all.
One important difference between both the Xerox and Microsoft optical mice and the Mouse Systems mouse: the Xerox and MS mice detect motion relative to the mouse itself (and thus the user's hand) - as do mice with a ball, while the Mouse Systems mouse detected movement relative to the pad. I always found the Mouse Systems pad-based system rather annoying (and the buttons were far too stiff as well).
About me: I worked at Xerox Palo Alto from 1979 to 1990, first as part of the operating system and network systems group building the infrastructure for the Star, then on AI hypertext projects in the Systems Sciences Lab at PARC.
I can tell you that the Xerox Optical mouse didn't need a special mousepad -- although it came with a printed grid. It could read almost any surface, including blue jeans. As I recall, it used one of the first Neural Nets to sense movement.
As you noted, there was space on the internal board for a third switch. We did sell a 3 button mouse for use with a Lisp machine -- a Dlion with extra control store (extra instructions). This system, known internally as a Dandytiger was sold by a different division than the division that did the Star.
The manufacturing cost of this mouse was $6, vs. about $180 for the original Xerox Star mouse (retooled from the Alto mouse).
BTW: This mouse, and the Star keyboard was still used until recently on BIG Xerox laser printers. ... I was just a software engineer who happens to remember stories from my friends who designed the hardware.
-Dave Curbow Digibarn Computer Museum