Found the VRAM for you, and it is 256 MB DDR2. I am still playing it at the lowest and sort of got used to it now but if there is some way around it I will glady take it.

And thanks everyone for the help you are offering.

The graphic card is definitely the bottleneck here. Due to the engine it runs (which is the Aurora 2007 from Bioware) The Witcher is kind of a heavy game in some areas and you can still experience some choppy behavior in a few maps (trade quarter in chapter 3 for example) even with a decent mainstream card.

Point is, your computer is fine except for the graphic card. 256 MB of VRAM is not enough either to play The Witcher at max settings. Minimum would be 512 MB preferably 1GB (of real RAM not shared one). Lacking a correct video card only the low settings will offer a playable experience.

Be aware furthermore that by default the game engage the anti-aliasing and the Anisotropic filters even on low settings. Better to make sure in your case that AA is set on disabled and that anisotropic is set at the minimum. Make sure that every other parameters are set at the minimum too. Once that done you can try to work your way up first increasing the resolution. Don't expect any miracle though.

Also the saves are in My Documents\The Wicther\saves. When you uninstall the game just make sure to answer no when the installer ask you if you want to get rid of your savegames. Although in your case a reinstall would do no real good.

one more thing to check - if your cpu is overheating it may cause stuttering and slowdowns, i had problems with my cpu heatsink getting filled with dust so much that it couldn't cool itself, might want to check the state of your case and see if all the fans are working properly. Also, check the graphic cards cooler too.
As far as AVG goes, it may also be a problem. Try uninstalling it and check how your game runs without it being constantly active in the system.

Definitely your video card problem i used to have 8400GS and honestly it is low end graphic card which enable you to play new games at low to medium setting with low resolution. But still this game engine is buggy at certain place and time especially when in game time is at noon and in the middle of city with lots of people. And i notice the bloom or special effect such as fire, sun light and any bright effect can cause some lag.. right now i'm using GTX460 and still encounter some slow performance especially on Trade Quarters.

I tried running tw1 on a following configuration:
P4 @ 3ghz (prescott core)
3gb of ram (ddr1)
nvidia 6800 gt with 256mb of vram, last drivers
resolution 1280x960
windows xp 32bit, sp3
All settings at medium, AA, filtering effects turned off or at minimum.
it runs at a very acceptable level, certainly playable even with many opponents on screen.
Comparing that to my current rig I'm playing at
core2quad 8400
8gb of ram
nvidia 450 gts, 1gb vram, last drivers
1920x1080
windows 7 pro x64

All settings are at max, no stuttering, no slowdowns, not a frame lost at all times, slowly finishing chapter 2 and had no problems with it whatsoever.
Seeing that it runs on these 2 vastly different systems, I really think that your rigs must run it like a charm... do check up on antiviruses and cooling issues

crackedegg is correct.

I would consider investing a modest amount in a better graphics card if you plan to play games to any significant extent.

If that isn't an option, then turn down visual settings (especially things like bloom effects).

dr.zli: you mention a rig with a 6800 GT and Windows XP. the OP uses Vista and Vista alone means a loss of about 25% framerate for the exact same hardware and settings. The 6800 GT was already faster than the 8400 GS and sure with it The Witcher would run OK on medium with XP... Vista is a whole other problem as it takes better hardware to get the same performances as XP.

The real difference is that the 6800 GT was a gaming card... The 8400 GS is not (GS spells it out... it was the way Nvidia told "you get what you paid for").

[yeah, you are right about vista and 8400, just read some reviews on the net and it's really slow. OP should invest both in new gpu and windows 7 upgrade IMHO ;)
Note about vista - I had vista for quite along time on my main rig and had no performance problems with it, but I think c2q and 8 gigs of ram are the main reason ;) windows 7 is better, try to upgrade asap

I know a few people on here suggested to turn off your anti virus but it more then likely will help. From personal experince with AVG I found the game almost unplayable with it on. I few other games i have were slow or choppy or flat out didn't work until i turned it off.