Is VO's ingame cursor rendered in software or hardware? And if it's being software rendered is there a way to make it render in hardware?

Also, does anyone know what these two settings do?

aa_quality=
fullsize_copybuffer=

The cursor is rendered by the game in the same way the rest of the UI is rendered, as a pair of polygons using the 3d hardware.

fullsize_copybuffer is a boolean value that is the "Ice Refraction Resolution" setting in the Video Options.
aa_quality is modified by the "Antialiasing mode" setting if your hardware supports antialiasing.