I turned off Powernow! and turned on highest performance for the hard drive in BIOS, but the problems remains. This is a fairly well documented problem on the net, with some people suspecting CPU throttling when the CPU gets too hot (not an issue as I have a mains fan blowing right into the underside, and it's still slow as frozen syrup), use of bargain bin thermal paste, or some other issue.
This Inspiron 1521 is now out of warranty and my only recourse is to not buy Dell again in the future. $400 is not cheap when you have to deal with a 1-2 second lag for every character that you punch into the keyboard (like is happening right now as I type this blog post).
One other item that bugs me is the horrific static noise when I listen to music or try to record something with this laptop. Apparently, the designers didn't think to solder a few things well enough and everyone who has bought the 1521 is now dealing with static noise. During the first year I had this laptop, I sent it in twice and they pretty much just cleaned the fan without addressing the static issue. They may have replaced the sound card with a refurbished one, but if the basic design is at fault, this doesn't change anything and indeed it hasn't.
I won't buy a Dell again. It's just not cost effective having to deal with such problems every single day; I suffer too much of a drop in productivity. Right now I'm looking into a Sager which costs nearly $1K, but of which there are nothing but accolades in regards to its performance and reliability. I do believe that laptop makers can make a quality $400 laptop and still make profit; Dell just doesn't want to. And when they drop the ball, they don't admit it. In fact, it's like they've dropped the ball, it got punctured by a couple of stray nails, and then run over by an 18-wheeler car, and then they sell you the ball and tell you it's brand new and of great quality and value. When you find out the truth and ask them to fix it, they pretend like nothing is wrong.
Dell, you had your chance. You blew it.