Although the Windows defrag utility is considered as mediocre compared to many third party ones, it still does quite a lot of what it is supposed to. Gyrene's experience of seeing heavy fragmentation with the Auslogics' product after defragging with the Windows tool doesn't necessarily tell the exact truth... Thing is, different programs may have varying aspects on the job at hands. I mean, after trying several defraggers I still haven't found one that clearly tells which programs it's putting into the first available sectors of a drive and why. I have a feeling each program has its own preferences, different of the ones of its competitors. That said, a frequent defragging with any tool on spinning hard disks will help, the differences being count in milliseconds. The Windows Defrag tool has one advantage, though: It doesn't add anything on the disk. The default timing is somewhat obscure: Who has their computer up and running idle at 1 AM?
Taskbar Apps and even browser toolbars can be terrible resource hogs. You might be surprised to see Internet Explorer running in the background in the Task Manager even in multiple instances even without using it at all! Because uninstalling IE is a no-no, I use a couple of tricks to minimize issues caused by it whether you use it or not. In Internet Options I tick the "Delete browsing history" and in the settings of temporary Internet files I set the history to 0 days, 50 Mb. Also in the tick box menu about checking for updated contents of saved pages I'd choose either "when I visit the page" or "never", the latter being best if you never use IE. A desktop background picture can also slow down your system, if it's taken directly from the net. Believe it or not, but it might check for updates! A better way than right clicking any image in the web and setting it as wallpaper is to save the picture on your hard drive and choose it from there for your viewing pleasure.
The sum of your apps and low amount of RAM are the most likely culprits just as Gyrene said. If you can't afford upgrading the whole bunch, doubling the amount of RAM would help a lot.
Reinstalling every 18 months sounds to me like overkill, but it depends a lot on the amount of un- and reinstalling poorly coded apps.
