In windows 7 use:
1. Open Local Group Policy Editor. It is quite hidden - search for it in Windows Start menu or in Control panel - use the search box as I have not found the shortcut for it. Alternatively you can run gpedit from command line (not from Run in Start menu).
2. Navigate to User Configuration - Administrative Templates - Windows Components - Tablet PC - Cursor.
3. Enable the Turn off pen feedback setting.

(From http://superuser.com/questions/49465/disable-cursor-ring-for-tablet-in-windows-7)

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