Much of the lag can be in the users end. Make sure you run POTC Online after a "clean boot" - do not open any other applications. You should also check your system tray for programs running in the background that are not necessary and are taking up resources.
There are several things you should be doing every couple of days such as clearing out all system cache/temp files by running disk cleanup (under accessories/system tools) and running disk defragmenter weekly. Ccleaner and defraggler (both are free) are excellent alternatives. You should also check and remove any spyware/malware by using either spybot search and destroy or SUPER Anti Spyware (both are free).
How much physical RAM your PC has, the CPU speed and the Video RAM will all have a huge impact on game performance. The faster the CPU and the more RAM, the better the performance.
There are plenty of good XP tweak sites on the Internet but I caution you not to do anything you are unsure of. Worst case you should be able to run a system restore to get back to your original configuration. I would recommend backing any crucial data prior to making changes. Even though you may have an awesome PC, there will still be some lag on the server end which you will have no control over. Switching servers can help with that most times.
*Also keep in mind...this is at your own risk...
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JUst search for some of the aboved mentioned and you should find some good info on how to do it.