Hey buddy, I feel your pain. I was running on a similar laptop for the last semester and I had to do quite a bit to get it to the point where it was workable.
The first recommendation I have for you is to buy a 2gb RAM stick. 1 gigabyte of ram is about enough for the OS and services and not much else. It is the primary reason your computer is that slow.
With 2 gigs of RAM, windows 7 will be more than usable if you turn down all of the performance settings. Go to the start menu and type "performance". Third down in the results list you should see "Adjust the appearance and performance of Windows". Go to it and make sure everything is unchecked except the last three on the bottom. It will look like XP but it will run very fast.
If more ram isn't an option, then you can try downloading linux mint with the cinnamon desktop. But really without that seconds gigabyte you will have issues with any large tasks.