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Win2K/XP will use all the ram it can, no matter how much you have. I use TClockEX to monitor my free RAM, when it drops under 100 I know its time to close stuff or things will start to get sluggish - I have 512 and 2K with a fixed 768 pagefile. The "lag" you are getting is things swapping in and out of the pagefile, which is slow - that's the hard drive.
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