White macbook Lion performance

I have a White Macbook 2,1, running Lion 10.7.5. I believe its the late 2006 model., 2G RAM. Replaced the original drive with a 500GB, 7200 RPM drive a couple of years ago. The performance is just dreadful. Constant spinning beach balls, delays in keyboard characters. I've noticed by System memory takes up 1.7G of of the 2G of available RAM. Am I correct is assuming that is the problem, and the machine is just not powerful enough to run Lion efficiently? I've run a variety of maintenance programs to clear out junk files, caches, etc, disk permissions. I do have an very large audio library connected through iCloud, but I don't understand why that would be a problem if iTunes isn't running.
Any thoughts about what might be causing the performance problems, or is it just the age of the computer?

You might want to open Activity Monitor and under the (Memory) tab check the amount of (Page Outs) to the hard drive....
The minimum requirement for RAM under Lion is 2GB.....so you will not have much actual RAM to work with for any extra apps.....that is  why I suggest checking the (Page Outs) in Activity Monitor....it would mean that the MacBook is using the hard drive to store commands that would normally come from the RAM and would be much slower....

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