AH always fills the screen, but is cropped to do so. Without modification on a widescreen, the top and bottom of the view will be cut off.
Look mostly for CPU power. Graphics are very secondary. I run full graphical settings on a three year old self-build.
Keep your computer clean of spyware and trojans. You could have decent performance on your current system, but by the sounds of your symptoms it's got something bugging it. Lags and warps are easily caused by update programs constantly calling home. Run a program called EasyCleaner (Google it). Under the Startup button, look for anything with "update" in it, or things that don't need to run all the time. Common suspects are Adobe, QuickTime, ect.
Hit ctrl-alt-del. If you're running XP Pro, click Task Manager. If you have more than probably about 21 processes, you have cleaning to do.
If you have an AGP slot, you could put in at least an nVidia 6800 and 1GB of RAM. That would bring your system up to a near exact copy of mine which runs full settings everywhere but the huge furball, an even then gets 35FPS.
Last but most important, never use Vista on a gaming rig. Yes, it will work. Slower. On some machines yes, it will run fast. But slower than it would with XP. Not to mention all the other stuff wrong with it. Retailers are still required to sell XP on systems, but usually you have to order over the phone and specifically ask for it.
Side note: You must download the hires texture pack from the main downloads page to use 1024 graphics. Without it you're running 512, IIRC.