I have AMD X2-3800 (stock 2Ghz O/C = 2.4Ghz ~ 2.6Ghz can get unstable BSOD random lock ups but you don't need to know that lol), 2GB ram, 6600GT, 250GB HDD and a nice O/C friendly MSI motherboard with Win XP-SP2, drivers etc and a stable internet connection. This should be up to running the game? I still get lots of lag in hotan, not so much outstide.
Try turning
shadow detail to nothing this helps me lag a lot less in hotan and outside grinding the game has fits of lag at random. I find sometimes in a party (of up to) 8 you will be getting EXP/SXP controlling mobs, even KS'ing botters

. Then boom several members just die or disconnect at the same time

Just evil. Some places lag more like the caves, Yachal's room one spot in the first room (back left corner after the last piller). A few to many of us near or on it BOOM