GREAT! Now try to run AHT again to give you a complete picture of any possible problems before you begin counting on that machine completely.
Here are some other suggestions written today before your report above of the successful OS re-install. Hope they’re now all moot at this time.
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So… BEFORE it completely loads the Apple Hardware Test, you’re getting a USB Setup Error via Open Firmware?
Did you try typing mac-boot… or shut-down at the screen prompt?
IF there is a problem with the USB controller, this might explain your sporadic mouse freeze / lock-up. But…
Might try connecting your keyboard (and mouse) to a different USB port(s) to see if that might make any difference AND attempt the Apple Hardware Test again.
I wonder if typing mac-boot might allow the machine to boot from the AHT disk to complete the testing OR if this USB Error completely prevents that?
Nothing else in any other USB port, other than the keyboard and / or the mouse?
Mouse plugged into keyboard, or into another USB port by itself?
All USB cables for mouse & keyboard in good shape? No kinks, frays or super “bent” wire shielding near point of USB insertion or exit from the mouse? Quite a few of the original “mice” from that era have damaged wiring from twisting & turning, over many years of use. Often, this can provide intermittent connections at that exit point.
Have also experienced some USB ports working better than others.
AND you might try C-booting the AHT at first, with the mouse disconnected… to later be connected - IF AHT boots successfully.
Closely examine your mouse.