So slow performance I can see bad code architecture! Help!

Question

I've been a Mac user since 2002, I've resisted the dark side until then.   And I've never had the kinds of problems I am having for the past year and I can't figure it out at all.  I would really like to reinstall Mac OS X 10.7, but I have never used Timemachine to restore data and I'm not sure how the entire process works.  Can someone tell me or give me a relevant link for how to reinstall the entire OS cleanly, without keeping anything, and then to repopulate my home directory with the data from the most recent Timemachine backup.  Note that my backup sits on an external USB drive, which is partitioned so that the first 500GB is used by the Timemachine and the rest (about 1TB) is storage space I keep files on (which are obviously not backed up!).  So I'd need to restore from the first partition of the external drive.  I am really worried that I'll have to hunt down and reinstall all the other apps I have on the system, some of which may not be avilable for download any more perhaps?  Or maybe I'd lose some settings and preferences I like?  Does the Timemachine backup that type of stuff, too, along with the home folder?  I don't know..   I have relied on maybe 1-2 unix tools, too, but I think they are in my home directory, though I'm not sure! 
The real solution is that I'd just like to speed things up a bit, and not have to go through the reinstall process.  It is a dual core 2ghz machine with 2GB ram.  It's a 13" Macbook mid-2006, so kinda old.  But it used to run flawlessly up unti labout a year ago!  I've run disk utility from Restore mode and it found no errors and there were no permissions to be fixed either.  Here is the break down of the symptoms this machine is suffering with.
It takes 10 seconds for the hidden dock to appear when I move the mouse to the left edge of the screen, sometimes the beachball appears first.  The CPU monitor does not rise above 15% ever!
Activating Expose by moving the mouse to the bottom left corner takes roughly 7 seconds or longer.  Beachball never appars, CPU never above 20% either!
Double click on a desktop folder can take up to 10 seconds to highlight in blue the icon, and then a further 20-30 seconds to actually open the folder.  Sometimes beachball appears twice or three times, the CPU isn't above 15% ever either.
Creating a new folder reveals a huge flaw in Apple's OS architecture due to the extreme latency of the system.  I can see the folder icon appear first, then a few seconds later the text to the right appears and it says "Untitled Folder", and then the text gets highlighted.  So they're wasting CPU time by showing it once and then highlighting it.  Then I type the new name and I press enter.  Instead of the new name appearing, I can see a further stupidity in design by Apple, because it reverts to "Untitled Folder" for about 5-10 seconds, and then the text is replaced with what I had typed.
In iPhoto if I select Export and the dialog box is supposed to appear, it doesn't happen the first time I select Export, ever!  I always have to do it twice or three times, and then the dialog box appears.
In TextEdit, when I select Save for an untitled document, the dialog box appears, but the "File Type" combo box is wrongly placed.  Half of it is on the modal dialog, and the other half is on the desktop.  If I resize the window, the jaggedly placed selection box remains attached at it's mid-point to the right edge of the dialog box, so always half of it is on the desktop!  This happens about 50% of the time.
If I click on the TimeMachine menu icon (little circular arrow) I get the beachball and then after 15-20 seconds the menu appears!  If I click due to lack of patience many times, the clicks get queued up and then after 20 seconds they all get executed in rapid succession, so the menu opens and closes 3-4 times in a row! 
The above happens for any menu bar icon, including WIFI, etc...
Timemachine's "Preparing to backup" can take 10 minutes.  The actual backup takes about 15 minutes, even though it's only backing up 100MB.  And it's always backing up 100MB, every freaking hour (how stupid of Apple not to provide a human-friendly way to control the frequency!).  So for 30 minutes of every hour, Timemachine is backing up.
I keep my iTunes library on my external drive on the storage partition.  When I'm playing music, all works fine.  When I stop playing music, the external driev spins down.  That's how it should be, to extend it's life.  But OS X insists on waking up the drive every 15 minutes or so even when no application is using it's data.  Unfortunately OS X is so terribly designed, that whenever an exteranl drive is being woken up the entire graphical interface completely and totally locks up for about 5-6 seconds.  Streaming music may continue to play, but nothing else reacts to user input.  Text typing freezes, mouse clicks don't work, things cannot be dragged, cannot switch apps, etc.  There are a ton of people affected by this problem all posting on various forums, so reformatting and reinstalling won't fix this... It's another Apple criplpling effect!  It's been present for at least 2 major versions now! 
If I am typing an email in Chrome on gmail.com, occasionally the browser tab freezes and refuses to let me type anything for 10 seconds, and when this happens, iTunes starts chopping out for a second or two several times duirng the 10 codn period, as if it can't handle the load.  However CPU stays below 15% during this whole time, too!
50% of the time when I wake the system from sleep it does not connect to WIFI.  I have to click on the menubar and select my network and then it connects.  My router is not flaky, my other computers do not have this problem, ever!  I have every OS imaginable, too
Despite all these problems, I have no problems running music apps such as Reason or Garageband, with one caveat.  Garageband struggles to playback songs I've composed on a 17" Powerbook G4!!!!  They have maybe 20 tracks of instruments/audio files, and that ancient CPU could play them without stopping.  This duo core 2GHZ with 2GB of ram periodically reports an overload and stops playback.  The CPU does not even reach 70% during this problematic portion.  Reason never complains, it's always below 10% no matter what I'm doing, and never gives me any problems whatsoever.
Launching any application takes a full minute, or longer.  Chrome takes 2 full minutes to stop bouncing!  Apple's Mail app takes a minute or a bit longer!
A basic Google search (typing text into Chrome's bar and pressing enter) takes 25-45 seconds to return results, despite the fact that I can download and acecss streaming and other content instantly from Netflix and other places without any delays!! 
***?!?!?!?    Is this a virus or something?!?!?!?  I only install software I buy from the App Store or at a store (beleive it or not there still are boxed softwares, those are super expensive though, hehe!)
HELP!! 
p.s. the third option I am thinking of is creating another user account and moving everything over.  But I don't know how to do that safely.  For example, I think iTunes doesn't properly store it's data, and even though I've told it to keep the library on the external drive, the "library" files (XML or wahtever) are kept on the local disk in the home directory?  I don't know, cuz I have two sets of those files, one in my user's directory and one in the iTunes folder on the external drive..

Answer 1

You are surprised that Mac OS X 10.7 is running on hardware that Apple officially supports and says it will run on?  I find your logic unbelievably falwed.
Not a single problem I've mentioned would be caused by "slow" CPU or "little" RAM.  How does iPhoto not bringing up the file dialog box have anything even remotely to do with the speed of the CPU or the quantity of RAM?  If what you say is true, then yes, performance would be bad, but it wouldn't be selectively bad.  I stated that apps such as Reason 5 run perfectly fine, even really well.  I can load 30-50 racks and synths and not even reach 50% of CPU utilization, Reason never freezes, etc.  DVD playback never freezes as well!!  Your logic is horrendously flawed, it seems you don't know much about computer architecture   Thus, unfortunately, your reply was of absolutely no help, sorry.
p.s. the external disk spin up problem freezing up the entire graphical interface also has nothing to do with either my CPU/RAM or the OS version I'm running.  It is a known crippleware factor of Mac OS X that at least a thousand people are complaining about online and Apple has done nothing about!