make sure your sound isn't using any shared resources (IRQ's DMA's etc)
having shared resources can cause stuttering like what you describe.
CPU is a bit slow a dual core would be better and you need more memory for sure.
i concur, more is definitely better, you don't have to go crazy. i was running alright with a 2.2ghz athlon 64 with 1.5gb ram and a radeon 9550 videocard.
using all onboard stuff sucks the power out of your CPU for sure. if your using onboard stuff, consider using cards to get some of the load off the CPU