Hi Kris,... firstly, respect for mentioning DOS and the command prompt - takes me back to my good old days of games programming! ;)
Second, you can absolutely fake a blinking cursor in a text field. The blink is fairly easy to do. Set up two layers, each one 0.5 seconds long (thats about how long a "blink" lasts)
On Layer 1 you will show your white cursor
On Layer 2, it wont show anytihng (but the timeline is still set to 0.5s)
Now on Layer 1, add a trigger that says SHOW LAYER "Layer 2" WHEN TIMELINE ENDS on THIS LAYER
And the same for Layer 2 (except of course you are showing Layer 1 when timeline ends)
This is a nice little timer hack, so SL will automatically swap between the layers at the right time and it will look like a blinking cursor.
If you then need to MOVE your cursor as the user types (just like in DOS), then I would just use a state in Layer 1 for each position of your cursor (1,2,3,4,5... etc)
Once you have the states set up, you just need to show the correct state WHEN TIMELINE STARTS on Layer 1. TO do this, you could use JS if you are comfortable with it, or a Numeric SL variable could hold the character count of the text field, and show the corresponding blinking cursor state.
Does that help at all?