Photoshop + Win7 will need more than 2GB. Pop that up to at least
4GB and see if the slowdown goes away.
If you want to build a new system, throw a budget out there. Is performance still the driver or do you want to quiet things down? FYI, that Xeon has about the same processing power at a Sandybridge based Pentium 620
....the sytem probably has half the processing power due to disk thrashing (lack of RAM). Given the G620 as a starting point, how far up this performance curve
do you want to go for photoshop? If the G620 benchmarks at 25.6s in this test, without bottlenecks, figure your Xeon (with 2GB RAM and ancient/slow HDD) is in the 50sec range. If it's mostly used for HTPC purposes, then the i3-3225 is a good fit (~$125, benchmarks at 17sec). If you want more Photoshop oomph, then move up to an i5-3570 (~$220, 11.3sec).