Support for complicated wheel/button mice has come along nicely in Xorg. Gone are the days of using ImPS/2 or ExplorerPS2 protocols (both Microsoft) to talk to the mouse, we can now use the correct HID event device.
These instructions are for an MX700 mouse that is part of the MX Duo/Cordless Desktop MX bundle. See the note below about the difference between this and a standalone MX700 There are two places that configuration needs to be performed, firstly in the main Xorg config file, then in per-user xmodmap config files. We will start with the Xorg config file
As root, load /etc/X11/xorg.conf into your favorite text editor and look for the mouse section. You want it to look more like this:

Section "InputDevice"
  Identifier "Configured Mouse"
  Driver "mouse"
  option "CorePointer"
  option "Name" "Logitech MX700 cordless mouse"
  option "Device" "/dev/input/mice"
  option "Protocol" "ExplorerPS/2"
  option "ZAxisMapping" "4 5"
  option "Buttons" "7"
  option "ButtonMapping" "1 2 3 6 7"
  option "Resolution" "800"
  option "Emulate3Buttons" "no"
EndSection

Note Finding the right USB device
The options "Dev Name" and "Dev Phys" are specific to the MX Duo/Cordless Desktop MX's dual receiver. If you have a standalone MX700 you can remove the "Dev Phys" option entirely and change the "Dev Name" option to the name of your mouse, as reported by cat /proc/bus/usb/input/devices Looking at the mouse you might ask why I have configured 10 buttons when it clearly only has 8. The answer is that scroll-up and scroll-down both count as buttons, so it is 10. Three button emulation is disabled because this mouse has 3 main buttons and the 800dpi resolution option is probably ignored, but in theory should be possible.

The second file we must edit is a per-user configuration file. In each user's home directory, create a file called .Xmodmap with the following in it:

pointer = 1 2 3 6 7 8 9 10 4 5

This should ensure that the scrolling buttons are correctly configured when X is loaded, however, if scrolling does not work you may need to run xmodmap ~/.Xmodmap (or place that command in an X startup script).
Restart X and you should have working scrolling and mouse button mapping tools should be able to use the extra buttons.