MouseEventArgs & EventArgs

Is it apparent that an object of the type System.EventHandler cannot be cast to System.Windows.Forms.MouseEventArgs. (You did not specify anything properly in your question, did not reference the event, but it's most likely that you mean the event System.Windows.Forms.Control.MouseHover which is uses with the event arguments type System.EventHandler. Next time, provide full names of relevant types, indicate what UI library you are using.)

Please see: http://msdn.microsoft.com/en-us/library/system.windows.forms.control.mousehover%28v=vs.110%29.aspx[^],
http://msdn.microsoft.com/en-us/library/system.windows.forms.mouseeventargs%28v=vs.110%29.aspx[^].

Your approach is wrong from the very beginning. You cannot get all the information, say, one the mouse position, from this event. You need to use, additionally or instead of this one, other mouse events working with the class System.Windows.Forms.MouseEventArgs, such as MouseMove. It's your responsibility to provide appropriate logic — you did not show what your UpdateZoomedImage does.

But you are making much worse design mistake: the use of PictureBox for something like zooming. This control is redundant, wasteful and not useful at all, unless you use if for something much simpler, such as showing some static images. I explain it all in detail and suggest what to do in my past answer; the first one is specifically focused on zooming. Please see:
Zoom image in C# .net mouse wheel[^];
why not using PictureBox and what to do instead:
Append a picture within picturebox[^],
draw a rectangle in C#[^],
How do I clear a panel from old drawing[^];
graphics rendering:
What kind of playful method is Paint? (DataGridViewImageCell.Paint(...))[^],
capture the drawing on a panel[^],
Drawing Lines between mdi child forms[^].

—SA