ready boost was a failed idea from the start. It was designed back when ram was much more expensive, and HDDs much slower than today, by the time the tech was released in Vista it was already a cheaper/better option to either purchase more system ram, or a newer/faster HDD. Ready boost is limited by the USB controller that can only do ~20MB/s , assuming your flash drive can read that fast... which most cannot. Readyboost on a computer with USB3 would be a different story, but I am pretty sure your mobo does not have that tech yet.
If you put 1GB or more ram in your XP machine then XP will stop using the HDD cache unless it is absolutely needed which will increase performance. I would toss 2GB of ram at it and see if that clears up your performance issues. Throw some of this at it: http://www.newegg.com/Product/Product.aspx?Item=N82E16820145527
and it should solve your issues.