Old system: strange Video issue Dimension 2350 i845

I need somene smarter than I to help with this. I've been working on resurrecting a dell Dimension 2350. It has such horrid performance issue I thought I would find some huge problems, but rather its been like peeling the onion one layer at a time. At this point its looking fairly healthy for such an antiquated system, running Windows XP Home, all updated.

What seems to be at root of a lot of the awful performance is video. Via dell, the drivers just had not been updated in many years. I checked Intel and got much later video driver for the i845 chipset. This helped a lot, but its still not what I usually see with onboard/onchip intel graphics. In particular, if I cut virtually every task out of the way, and just run a flash video on youtube, I get strange results:
- at 360p playing in a window, its passable... not great
- at 720p playing in a window, its worse, very laggy, but the video image itself is not bad
- Expand that 720p to full screen and it goes blank. cannot display at all although I'll still get audio... VERY laggy [and I'm using a flash drive for extra paging/Virtual memory
- Back to window mode, I check the performance monitor and the CPU is spiking to 100% regularly, like watching a heart monitor, but its not utilizing much memory [memory limitation of the video chip?]

is this "normal" for that particular setup? the processor is a celeron running 1.7, system bus 400mhz. onboard memory is max'd at a whopping 1GB.

??

 

I wouldn't say processor spikes like that are particularly normal but as to what causes them...

Just one thought; if you are streaming video from Youtube have you ruled out slow internet? (Im guessing that this is not the only PC you have connected so is probably not an issue)

Might be worth posting a HijackThis log so that we can see what processes you have running then we can try and streamline things a bit further.