Well shane, your problem is very simple, You're running Windows Vista :P
Actually, I am not kidding at all, Windows Vista is a resource hog, and for your computer, I am not surprised that it has that effect.
I don't know how familiar you are with computers or operating systems, but I love Kubuntu, and if you know how to work it, you can get everything you can run in windows, to run in the unix system.
Now, about your mouse, you probably have smooth mouse checked, that's why your mouse moves fine.
I'm sorry to say it, but that system being a compaq (I hate compaq :P) have those specs, and running Windows Vista, it really doesn't surprise me.
Here are some things that could help. Set the resolution lower, Set the effects lower, and if that's still not working for you, I'm stumped.
well, good luck
Let me know what happens after you try some of that, maybe I can help a little further once I know more about what's going on (I had a similar problem on my other comp)