I believe I have found a conflict between the Mac OS 8.6, Virtual PC 2.13, and the MacAlly PointDevice 3.1 software used to operate their 2 button ADB mouse.
My system is a 7500 with a 233Mhz 604e card with 112 megs of ram. Everything had been running fine with no crashes in 8.5. I then updated VPC to 2.13, since I read this was needed to run it in 8.6. I ran VPC a couple of times after this and didn't see any problems. I then updated my system to 8.6, and VPC would lock up the computer (the mouse would freeze, sometimes I would get errors saying "error type 10" or "illegal instruction" and that I had to restart, but other times it would just freeze completely.
I tried no extensions and then in extensions manager I choose "8.6 all", and both had no problems. From there I added 6 extensions and Control panels that I thought might be trouble, and then narrowed it down to the 2 extensions and 1 control panel from MacAlly's PointDevice version 3.1 software (this is PointDeviceDaemon.2m, PointDeviceINIT and Point Device). Note that "macally input sprocket", which is a separate install, did not cause any conflicts.
I also tried these 3 individually. It appears that the control panel Point Device is only an application, and doesn't have any functionality by itself. But when it is opened it appears to install the 2 extensions, much like Iomega Guest does. Before launching it there is no conflict, but it also doesn't give any of the 2 button functionality. After opening it it does cause the conflict with VPC, but does act as a 2 button mouse in the finder and other apps.
PointDeviceDaemon.2m by itself freezes up the mouse in the finder. The keyboard still works, as I was able to open up sherlock and search for the mouse control panel....but life without a mouse is not what I am looking for.
PointDeviceINIT by itself gives the functionality of a 2 button mouse in the finder and other apps, but locks up VPC on attempted start up. Since this is the symptom I originally saw it is probably this extension's fault, though the PointDeviceDaemon.2m might play a role too.
If you need any further information or have a solution, please e-mail me at firstname.lastname@example.org
I am sending this out to various places including MacAlly, Connectix, Apple, Macintouch, MacGamers Ledge, xlr8yourmac, and other web sites that are tracking issues with the 8.6 update.