"You currently have Adobe Photoshop's primary scratch and Windows' primary paging file on the same volume, which can result in reduced performance, it is recommended that you set Adobe's primary scratch volume to be on a different volume, preferably on a different physical drive".
This is the message you get when installing Photoshop.
Scratch files are empty spaces on Hard Disk Drives on which PS can write info withwhich it is working.These free spaces have to be in one block, and if they are on the same partition as Win (for example, and most probably C

) you're in trouble because when Win is active it writes on the drive in a very chaotic way, blocking PS's work.
And the more your Cdrive is filled, or the more progs you have running (in the background or not), the greater the probability of crashes or slower workflow.
I'm not familiar with XPPro, but I guess it's something like my Win2KPro.
So I have a few questions for you:
1/ Do you work with several layers? because if you have say 5 layers with 20MB each, there is some calculation to do...and if you say that 20MB is a small file fro you, how much is then a normal one?
2/ The first scratch file should be on your second HDD. That it's "only" 5400 rpm is no issue as the access and write time for this speed is quicker that that of a 7200rpm HDD. (the speed difference is mainly important for movies etc). But it should also be in one block. Did you try to run defrag?
3/ How many progs do you have running at the same time?
4/ How many progs have you running in the background? (Because Resources are no RAM). See the task manager (Ctrl+Alt+Del in Win 2K)
5/ Where is your Win scratch file?
6/ Is this only a problem of Photoshop or are the other apps suffering too?
7/ What videocard do you use?
8/ How many RAM does your mainboard support? What brand of mem did you buy, or is it bulk, ie nameless? How come you have 640? Did you try to do it with 512 and take the 128 out? Just an idea...
9/ Why overclock a processor that already runs like a Ferrari but produces heat like some supernova? AMD is known for its overheating...if you're a gamer who changes PC like someone else changes shirts, then I can understand, but for normal use overclocking will only shorten the life of your processor. The differences in actual speed-gain will be minimal.
And finally: what do you call slow? What are you expecting? A 1600 is not twice as fast as a 800.
Just some thoughts and questions that enter my mind, and that give an idea how I would try to tackle the problem.