you mention xp sp3, 4GB with the 3G switch, and 260gtx. What you failed to mention is the cpu and mobo. This could be a fsb issue or your cpu is being bottle-necked. But without the mobo/cpu info its hard to tell.
FYI even though you've upgraded to xp sp3...microsoft either stopped or will stop providing any but security patches for the OS and I'm sure the expiration for support is listed on MS's site.
That said, W2 has a few memory management problems. When the game freezes, have you waited 10 minutes to see if it is just having issues loading, or are you rebooting when this happens? Switching out to desktop to start the task manager is an issue I have on occasion, Alt Tab wont allow you to switch to the desktop, so I have to hit ctrl alt delete to bring up the option of activating the TM. Then the W2 will attempt to regain focus until you are able to click on the icon in taskbar and force it to minimize. Now I get control and can look at whats happening. Event Viewer will seldom show errors for me, Norton goes into silent mode on full screen, but its logs show cpu usage for W2 will hit 100%, and when it hits 100% the next load screen usually will cause a CTD.
If there are other issues, maybe the patching went bad. I've noticed issues if a patch was applied twice. One of the two patches auto installed, but one needed to be manually launched. Since Admin rights shouldn't be an issue with XP, I doubt you needed to do anything special. One thing you might want to check on is that your DX9 is up to date. I don't think windows update will always show dx updates. think the last one was a june 2010.
If you're ram is processing faster than your cpu, downclocking the faster or overclocking the slower might help a little. However I really haven't seen any major help coming from this type of change, CTD's might be less frequent but for some reason the cpu core handling W2 eventually hits this ceiling.
I see W2's max RAM usage caps just under the 2GB, regardless of system memory installed. I usually see something between 1.7 and 1.85GB
patch 1.3 might fix this, but information is limited, someone mentioned its nearing completion and might be out next week. However, CPDR has alot going on right now. Between the new hardware, glitches with W2, trying to create the new forums, etc...another company attempted to do something similar with a F2P model and fell flat on their face as well. It's been close to 2 months and their still trying to get things set up( i.e no official forums yet.)
You can try downscaling texture, and texture cache sizes, but I think this causes a glitch where a loadscreen splash will randomly pop up during fights and just walking around. You can try different things to make it perform better
Make sure there is nothing that windows is loading, Autoruns or start up items. Java, adobe, itype, all utilizing cpu, ram, and bandwidth.
Try turning off autoupdate features. Windows Update with XP shouldn't interfere if I remember, or set all your updates to run at the same time every day, either at startup or shut down.
check to see how many processes run at start up. I would guess between 40 and 50 should be a safe number as I forget how many processes xp will run just to keep the OS up.
Don't Launch Witcher 2 from the Launcher! Instead go to the actual program directory and create a shortcut on the desktop for it. I believe its in the bin directory, ie the witcher 2\bin
You mention a resolution, is that the native resolution? Changing from a native resolution will put more stress on the gpu than if you tried to run it at native. If you alter the resolution make sure that vert sync is on.
Change Nvidia settings, allow the program to control the settings instead of the Nvidia control panel.
Clean up your nvidia drivers. Then reinstall the 270.33? driver. Nvidia has made it so that if you clear out the old stuff, that for some reason you have to tick/enable the nvidia update utility during the install or it will give an error during the process. I was forced to load the 3D vision stuff as well. If you show the 3D vision drivers/app in your Control Panel installed programs, uninstall them. These will only cause you problems unless you have the 3D monitor and glasses. I think this may be one issue that you are experiencing.
I think I have hit a wall as possible explanations, if you've tried all this, then hopefully someone else might have some tweaks or instructions as how to configure this resource hound.