Games jump from smooth to choppy in Vista

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1.8ghz k8 is a lot more powerful than u give it credit for. Running Vista will eat a core but if u willing to spend the time working out the bottleneck you'd be able to get acceptable levels of performance.

Random dips are probably more related to bandwidth issues than lack of raw CPU power. I work with fine tuning 40mhz microprocessors and you'd be amazed at what they can really do balanced. Its almost definitely an issue with the mem subsystem but dropping in a 2.4ghz c2 would fix it only by brute force. If u really determined you'd be able to pull it off with your current HW.

Readyboost cache is very NB
512mb of vid mem is also because u might be getting paged textures

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Turn motion blur down as well. That will lessen stress on your gpu during quick movements.