ADXL 335, lack of resolution for short angle inclination?
You might consider doing what was implemented for traditional mice - relative positioning. Make your angle represent the velocity of your cursor instead of the absolute location and you'll find that you decrease your resolution requirement. 

Alternatively, you could have 1 step equal more than one pixel of movement.

Now, looking at the system to see any other issues, the ADXL335 is an analog output device with a sensitivity of 300mV/g. That isn't going to be a whole lot of change at 10 degrees.

\$ \sin(10 ) =  0.174g \$

\$2 \times 0.174g \times 300 mV/g= 104.2mV\$

Trying to sense 10 bits of accuracy from 105mV is going to be a bit tricky, and susceptible to noise. With a 5V Arduino, you'd get only 86 ADC counts over that range. You could try amplifying this signal - it will take a signal of about 1.25 V to give you that 10 bits of resolution, so you need a voltage gain of about 12. With some filtering, you could probably do this with an op-amp.

You could also try mechanically amplifying the magnitude of the the swing, but you may start reaching some complicated mechanisms.