You probably have several limitations. Not enough RAM, a mediocre dual core CPU, and a mid range GPU. Now, given your resolution, the GPU probably is fine... although with a single 5850 I was able to play on High at the most and it took two 5850s to play on Very High, but also at 1920x1080.
Your CPU could use some OCing, but it also is probably ok.
2GB RAM is probably holding you back, causing the game to use file paging on your hard drive, and whenever it has to access it you get lag.