Wow. You just made me feel very nostalgic with those specs.
Okay, I wish I could stop saying this.
Just because one game runs fine doesn't mean the other does!
Just because it used to work doesn't mean it still will. I know it says "minimum 1.5ghz pentium 3" But that means with the
utterly lowest settings. Your entire rig hits the bottom end of the Recommended settings. XP SP3 eats quite a bit more CPU than 1 and 2. AVG has also gotten more CPU intense over the last year. (Annoyingly.) Those two alone combined eat up pretty much most of your speed.
Now for possible solutions that don't involve spending money....
Does it work if you turn everything to extremely low?
Also, it is possible your pc overheats. Run
GPU-Z for the GPU temperature, and
CPU-Z for the CPU temperature.
Would this "minimal processes" be the ones listed under the Tasks or under the Processes tab in Taskmanager? Because most processes aren't listed in the most commonly used tab in taskmanager. Try seeing what you can shut down from the Processes tab.
(Not by clicking 'end task' at random! That WILL reboot your pc!) Use google to look up what process does what before you kill it.
Windows, regardless of which, runs a ridiculous ammount of utterly useless services you absolutely don't need, and most of the time don't even want running. This will require manual editing of services.msc. Follow these guides:
htt p://www.jasonn.com/turning_off_unnecessary_services_on_windows_xp
http://www.techrepublic.com/i/tr/downloads/home/windows_xp_ services_that_can_be_disabled.pdf
Also, when was the last time you ran your virus scanner; and a registry cleaner?
