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I cleaned up a machine at the weekend with similar problems. It was an old PIII laptop with only 256Mb Ram. You could bake a cake while it booted and it wouldn't see an external HDD that was plugged in.
Nothing to do with service packs or updates, merely links to resorces that weren't there, some misguided apps and bloatware.
The PC had links, on the desktop, to USB devices that weren't plugged in as well as links to the net. Shortcuts to removable devices and or network resources on the desktop can bog XP down, as well as cause long delays when opening IE.
As well they had a sync utility which was trying to sync files that had been deleted from their HDD to folders that no longer existed on the removable device.
To top it off they had installed the mother of all bloatware products Norton AV.
Regarding AVG, I have found lately it's a real dog, several times it has removed parts of applications after detecting "false positives", I've since removed it and gone to AVAST antivirus, which is free for home use and very well reviewed. All my machines have auto update turned off.
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