2 or three things. Can you change your Video RAM in your BIOS? Chances are that you can't, but if you can change it to 128, there is no reason to change it to 256, for that would be counter productive because CS:S/HL2 needs more than 512 of RAM to start with.
If you are having really bad lag problems I would think you may have your setting to high because the sojurce engine scales very well. Make sure you are running the game in DirectX 8 and no more than 800x600 with the settings on low and AA and AF off. Now run the Video stress test and see what FPS you get. If this number is over 50 then start raising your settings to you get to around there.
For future reference the best and easiest way to reinstall XP is to go into your BIOS and set your boot drive to the optical drive and then let the disc boot up. Windows will format your disc and reinstall all in one step. There will be a few questions for you to answer anlong the way, but they are all pretty strait forward.
you may want to try anandtech.com and go to there forums, they are one of the best for computer problems.