I guess you are still at the initial download of the current block chain.
until your blockcount is around 66k you still have to download the blocks and verify them. this takes quite some hard-drive performance, so maybe thats what is slowing down your system.

It will always use max CPU to generate but the generating thread is scheduled at a low priority so it should yield to other processes.  I can compile code and do other things on my windows machine with 0.3 running and it doesn't seem to slow it down for me at least.

while i'm at it.
probably totally wrong place, but,...
248 confirmations and my address has changed. why has my address changed. please?
HELP!!!
hehe

I don't think their is any renicing under Windows.

In Windows, you select the process in the task manager, right click, Set Priority.  Set it to BelowNormal or Low.  That shouldn't make a difference though.

If you turn off Generate Coins, does the CPU usage go flat?  That would confirm that all the CPU time it's taking is generate, which is idle priority already.

It could be it's slow just because you have too many things running at once and you're out of memory.  When you switch from one thing to another, it has to page it in from disk.

Then all the CPU time is the generate thread, which definitely runs at the lowest possible priority, idle priority.  It's normal that your CPU meter is 100%.  Since it's idle priority, it won't actually slow anything else down, even though the CPU meter is 100%.

I also run Bitcoin, Gomez Peer and BONIC ( World Community Grid ) on 2 of my older XP machines. However, they are duel core, So I set Bitcoin to use just 1 Core and BONIC to use 50% resources. I rarely hit 100% CPU usage for both cores, even with additional application usage.

You should try to find a good balance between CPU usage, productivity, charity and economics.