When a device is touch the mouse pointer needs to be removed from the screen.
This can be done very easy in from Windows API or even from .Net Compact Framework:
However, if you want to completely remove the mouse cursor you have to do it from Microsoft Platform Builder before the image is deployed.
In Platform Builder you have to Select Touch Screen (Stylus) in your item catalog (Catalog -> “Core OS\Windows CE devices\Shell and User interfaces\ User Interface\Touch Screen (Stylus)“ -> Add to OS Design (see image below)
This action will activate following environment variable: SYSGEN_TOUCH=1
BSP_NOCURSOR = 1