I have a brand new comp, core i7 920, 6gb ram, geforce 260, etc.  I am also currently using it at my office on a very very fast connection... yet when i was hosting games or being selected as the host in random games, there would be huge lag for everyone almost seeming like processor lag... ne way, why am i telling a story.......

its pretty simple, DISABLE YOUR ANTIVIRUS! or figure out which directories to exclude from scans... disable completely first to test if you are having trouble hosting

sorry dont know exactly for xp but heres some vista dirs to add to your whitelist

C:\Users\Ryan\AppData\Local\Gas Powered Games

C:\Users\Ryan\Documents\My Games\Gas Powered Games\Demigod

C:\Program Files\Stardock Games\Demigod

C:\ProgramData\Stardock  this directory is hidden so just add it manually to your whitelist

dont forget to include all sub-directories!!!