My guess is you have onboard sound. So firstly update the driver for your motherboard. If you want to find out if it is your sound card causing the problems then turn all sound options down to the bear minumum. On your setup I believe you should be able to handle 4000 men. Maybe you should try asking around what limit people have on there systems similar to yours with a 128 MB vid card as I have 256 MB video card 1.49 GHZ processor 512 MB of RAM. And I can get 5000 plus men on the battlefield.
Also on my PC I have I have hardware acceleration for sound turned down to the bare minumum. You can adjust this in the control panel not in the game. With MTW I had lag with max acceleration on sound. But when I turned it down to minumum acceleration the sound was actually better and I had no lag as my PC was'nt trying to do something it could'nt handle.
Heres how to get to hardware acceleration for windows XP, may vary slightly for other windows programs
Control panel
Sounds speeches and audio devices
sounds and audio devices
volume
advanced
performance
From there you can turn your hardware acceleration down to none. Game runs fine for me at this setting minus the 7 wonders when the sounds play but not worth complaining about for such a small feature.
If you have onboard sound I reccomend this as you are trying to ask your processor to do extra work that really needs a sound card to do and your performance will hopefully improve.
Edit: I also have the sound options in game turned to max. I do get a little extra performance when soumds are down but it's not worth it as even on huge settings I have to do a custom battle to break this barrier
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