To be honest your cpu should be perfectly adequate for sh3, i used to run stock sh3 on a 1.2GHz pentium 3 with a nice steady framerate.
I would certainly invest in some more system ram though, you should be able to pick up 8Gb fairly cheaply+ if you aquire some additional ram dont forget to apply the 4Gb patch to the game so it can take advantage of the extra memory.
Also since you mention getting 100+fps, i would suggest turning on vsync, running with an unlocked framerate can "feel" really laggy simply because your fps is going way beyond what your monitor can display, i had a similar issue with sh5, getting fps between 50-120 with vsync off felt a bit of a wild ride, going from smooth to laggy in an instant, turning on vsync and locking the fps to 60Hz smoothed everything out.
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