I have an identical mouse to yours, and an identical setup, except that I
am running the mouse through the USB port directly. I have had the same
problem, of having no wheel support enabled. I have exactly duplicated
the configuration you give below, but it does not work for me. In particular,
my mouse works with the PS/2 protocol, and switching it to ExporerPS/2 causes
it to fail badly, in the manner which a mis-selected protocol usually fails
(although it works approximately if the mouse movements are kept very small).
If I switch back to PS/2, the wheel does not function.
Is there anything else you have done to enable wheel support?