I was having the exact same problem. I was running an old version of LW...it told me to upgrade my java that I was running at 1.4x....as SOON as I upgraded to JAVA 1.5 my computer slowed down to a turtle. I reasoned that it seemed like a LW <-> Java 1.5 interaction problem. So...I downgraded back to Java 1.4x and have never looked back since. I am running LW 4.8.1 with old Java 1.4x and see NO performance hits as I was seeing with JRE1.5.

Specs:
P4 2.68Ghz
512M Mem
80Gb+ free HD
Win XP Pro SP2
JRE 1.4.2_07

So...something weird with new Java is not playing well with new LW. Seems like Sun changed something without telling the rest of the world. Just my opinion.

Ken