While 3ventic offered a good fix for the problem, I'd also suggest just buying a cheap USB controller from Gamestop or something. The game is a direct port and is meant to be played with a controller so aside from multiple downloads / tweaks, the game will play like garbage with a keyboard and mouse.
I've been a PC gamer for over 15 years and Dark Souls / Castle Crashers are among a number games that really do play better with a controller even if you've never used a recent console's controller. There are few games I'd actually recommend using a controller on PC for, but this is certainly one of them.
Although if you insist on using a keyboard and mouse for the game, refer to 3Ventic's answer. Also for what it's worth, most Steam games that need tweaking or have port (or normal) issues such as this one you described usually have an answer or a few trusted recommended fixes over at the official Steam forums for that game.
I've on several occasions had to get fixes for mouse / keyboard / other misc in-game issues over there and chances are someone has already asked the same question as you and possibly received an answer!
Hope this helps!
Edit: After some research, I found that DSFix is pretty hit or miss depending on your system and settings, but it is pretty much your best bet to hide the cursor even when using a controller.
Also for a comprehensive list of issues / fixes take a look at