You need more RAM (memory) and defrag hard disks at least once a week. There is a good and fast defragger called DefragExpress which really speeds up the defrag process -
http://www.disktrix.com/defragexpress_main.htm
I use that one once a week on my partitioned hard drives (about 8 in total) and it works well.
I also have used AVG Free for the last five years and have the latest version 9 free version. Can't say I have noticed it being any slower than previous versions... except of course when it does full system scans, but that is to be expected a bit... I just turn them off or schedule them once a month.