This is very odd. Did you do a complete reinstall of WinXP when you upgraded or was it inplace?
I can't really think of anything else that would cause this slowness. You may want to check out the EA forums at http://www.battlefield1942.com and see if anyone is having the same problem. I feel like I heard about something like this over there.
Also, I'd leave the 1.2 patch in place if you play online. They solved so many issues with the net code, response time and balance issues. It's like a completely different game.