Not another one ...

Lolwut, your problem is definitely a glitch / [result of judging the game on the first three minutes], and you need to keep that in mind before you insult Alec and Derek's lovechild.

Also, look through the readme file in the main Aquaria folder (search Aquaria if you can't find it immediately). If every possible solution fails, use the mouse + keyboard combo. It's the best way to play Aquaria IMO.
A series of questions might help clear up things:
1. a) Question When you start Aquaria and enter the options menu, is auto-targeting on?
b) Why? That makes sure that the shots home in on enemies (having to aim is usually an option).
2. a) Do you work for the developers' rivals?

Just joking, if you're wondering...
3. a) What gamepad do you use?
4. a) Describe more thoroughly how you fight the cursor.
[I'll add more questions as they come to mind.]
I hope your problem is solved - Aquaria's control system is a beautiful thing to behold (when it works).
Also, here are the opinions of players with functioning gamepads/games:
I played almost the whole thing using a USB game controller (a Saitek P2500, for the inquisitive). I just left auto-targeting on, and swimming/aiming etc was no problem. Being able to use an analog stick for moving about seemed infinitely easier than using the mouse or keyboard, evevn if I did have a bit of a time with button-function overlap. Also, since you're using your thumbs instead of clicking, you can pretty much kick the crap out of anything and everything with energy form shots, even unenhanced. The whole game seemed quite easy, although still immensely enjoyable.
I used a gamepad and found it very easy to control. Though I did need to use third party software to map the form hotkeys to buttons on the gamepad. For the beginning portion of the game I didn't use hotkeys and it was more challenging, since I had to stop swimming to sing. Which can be dangerous depending on the situation.
[EDIT]: Inkblob's right about the dream sequence - you won't see a difficulty like that again for a long time, and it's just a harmless preview (i.e. nothing happens when you die).