I have the same problem and asked this question in another topic
I run SH3 with the GWX2 on a Notebook with enough Memory and CPU but my Graphikchip is a ATI RadeonMobiity X300 which is slightly faster than our 9600 (if my memory does not fool me)
For me it means just a very high amount of slowing down.. loosing control of the mouse and keyboard as you describe it.
Seems to me it is the graphik chip... as I cannot change my Graphik card (notebook) this is not an option for me... but maybe for you!
Ther also should/could/woulb be a way to change the camera.dat by hex/editor.... whatever... but I am not experienced in any of this at all!
Maybe someone with knowledge would be so kisnd and generate a Camera.dat with a fixed "I don't blurr any more" periscope... ok ok... which would be cheating... but I use OLC's GUI/U-Jagd tools... and not being able to get the solution and/or get the solution in the TDC is frustrating.
Though I have almost accepted that the way it is is the way it is.. I won't give up the search.
So please... someone... who can do it... fix the blurrig effects "out" of the periscope to make the game playable for some of us... thanks!