After much experimenting it seems the problem is something to do with DirectX.
Turning off hardware acceleration in dxdiag massively improved things. Not good enough for 3D effects, but usable!
Also, turned off services (via the control panel) such as fax, print spool and loads of others that I do not need on the machine to free up a little more CPU. Go careful doing this and be sure you only turn off things you know what they do and don't need or you may have big problems.
Hope this helps someone. Would be good to report back if it works for you......
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