I saw the same issue when I installed updates on my OS X Yosemite 10.10.5 VM, also in Fusion 8.5.8 on macOS 10.12.6 host: mouse and keyboard both stopped working inside the VM. For comparison, no such problem with the latest security update on a native Yosemite system running on my Mac mini (2012). Also no problem with the latest updates in VMs running OS X El Capitan 10.11.6 and macOS Sierra 10.12.6.
One detail of note: my Yosemite VM is using the Der Flounder BeamOff technique to improve UI performance in the Yosemite VM, but this is set up to run via a LaunchAgent, which doesn't kick in until after the login window. I wasn't able to get that far because I couldn't move the mouse or type anything in Yosemite's login window.
Investigation so far:
1. Restored my backup of the Yosemite VM, then installed all available updates apart from Security Update 2017-003. Still works, so it definitely looks like the security update. (I note that the iTunes 12.6.2 update is not offered on Yosemite until after this security update has been applied, but I never got that far on my first attempt to install updates, and I doubt iTunes would have such a wide impact on the system.)
2. Took a snapshot of the VM.
3. Set up Remote Management in System Preferences and confirmed I can remotely control the VM using Remote Desktop from my host Mac, including entering password in the OS X login screen.
4. Installed the security update again. After restart, again confirmed that the keyboard and mouse are not working in the VM.
5. Used Remote Desktop. It can control Yosemite in the VM, therefore the problem is only that VMware Fusion 8.5.8 is not able to forward keyboard/mouse activity to the VM.
6. Just in case, I did a Reinstall VMware Tools. It didn't help.
As I use this VM rarely, I'm happy to leave it in this "indirectly usable" state for now, if there is anything else that someone would like me to try or there is anything useful I can gather from it.
