Updating windows will make your machine slower, not faster.
What are you talking about in regards to "lack of screen rotation"? You can rotate the screen on any OS from win me! and beyond.
What resolution are you running the horizontal games at?
The last question is your issue. Again, you should be running the games at their native resolution. If your monitor is capable of resolutions higher than arcade resolutions, you are using either the wrong monitor or the wrong video card (it's your choice as to which one needs to be swapped out). ArcadeVGA is for ARCADE monitors.
If this is not your issue then you are going to have to explain your rig in detail, because thus far what you've told me you are doing doesn't make any sense.