For some peculiar reason the simple command: Screen.showCursor = false; is not working on my screen (PC Windows 7). Any Help? Thank you.
The good news are that when I build and run the level, it works fine! There must be something external to unity that interferes during production. Thank you.
I was having this problem as well and then I found that another script, in this case PlayMakerGUI, was showing my mouse. Try adding your script to an empty project and see if it still does not work. I can get my mouse to hide in editor play mode in Mac OS X 10.6.8.