I seem to have a similar problem with my Space Navigator PE and AutoCAD 2008, only with mine it is when zooming in. When I try to zoom in, everything goes well until past a certain zoom level. When I release the Space Navigator the zoom level is reset to that limit. Zooming out doesn't seem to have this glitch.
I have tried to reverse the axis, but that didn't do any good. Still zooming in had the problem, not vice versa that time. I also updated my drivers to 3.3.2. and nothing changed either.
I normally work in Classic mode, but it also occurs in 2D Drafting & Annotation and 3D Modeling, but only in Model space. In Paper space it does work normally, like dquirk already mentioned.