Ok I've finally fixed some SERIOUS lag issues with my new install, and want to share what I've learned. If this is a repost I apologize.
Phenom x2 550
2gb of ram
Asus M4A78LT-M LE Mobo
First I installed a fresh copy of XP pro and applied windows updates, installed flash version 10.1, newest video card drivers, latest Internet explorer and latest Windows Media Player, k-lite codec pack, and even java(why not lol)
All internet video was choppy, making it un watchable. I checked the task manager while playing online video's(youtube, clicker, just about everything I could try) and i had plenty of free ram and my processor usage was at like 5%-20%max. So i messed around and finally after uninstalling flash 10.1 and installing flash 10, the choppyness was reduced. Then i turned my ipod touch remote off and voila, all online streaming video's were playing smooth as they should. After the downgrade of flash, the processor usage increased on average about 5% while playing videos, but the processor still eats through whatever i throw at it.
Its a possibility that the flash 10.1 performance issues are Adobe's responsibility to fix, but could we get a fix for the ipod touch app? thanks!