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Okay let's try some standard things.
1) Rename the AVI folder to AVI_back
2) Set the color depth to 16BIT
3) Turn off everything in the background like E-mail/ICQ/Messenger, Virus protection and everything in the system tray beside the clock.
4) Update your Windows, update your Video card drivers and audio card drivers. Then repeat steps 1-3.

If none of that helps, then:

Please run a DirectX Diagnostic:
Start menu –Run - then type Dxdiag, then select each tab across the top of the window, and run the tests on each tab. Then select “Save All Information” button in the lower right of the window. This will bring up a dialog box to allow you to select a name for the file where the information will be saved. You can save it right on the desktop as this will make it easy to find. Then copy the contents of that file from the start to the heading that says “DirectX components” then paste what you have copied into a post in this thread.
 
Well, couple of problems.

Memory is a concern, really you do not have enough memory to run XP on that system.
Adding some memory would be a MAJOR improvment for all your apps.

The Big problem though for your system is the VIA drivers, they are known to be buggy, but not much you can do about it with XP.

Check to see if there is an update for the video driver, I see it is pretty old. Also check to make sure you have the latest VIA drivers, they are buggy but hopefully they keep improving them.
 
Well I do know people that have restored to SP1 becuase of problems with SP2, Personally I never had one problem. But you could try it.
 
Good luck, sorry I could not be more help.