PC Upgrade Necessary?

Well, you would benefit from upgrading your system. The Sempron is not a particularly powerful CPU, and MC5 with several VST's is probably a bit of a strain on it. You can open Task Manager to see how hard it is working.
Upgrading to a core 2 and more RAM would certainly be good, although that won't address what is probably the main culprit.
You don't mention an interface, so I am guessing you are using the built-in sound card. If so, what you are experiencing is very common.
A decent sound card/interface will make the most difference, followed by upgrading your core system.
It won't be dirt cheap, but you can move into the present nicely for less than you probably paid for that old PC in the first place.
Also be aware that MC5 and some of your plug-ins may not run properly on a new PC.
Since you are serious enough to be creating a dedicated music work area in your home, this would be my plan of attack:
New PC: At least Windows 7(XP is done, and Vista already has limited support). At least 3GB RAM(preferably capable of supporting more). A respectable CPU. If budget is tight, look into refurbished units. I have been shopping NewEgg and have found some PC's with respectable specs at pretty good prices.
Interface:This is the heart of your system, arguably more important than the computer itself. Carefully compare specs, especially I/O, MIDI, and drivers. Get the best you can afford, preferably a bit more than you think you need now.
DAW Software: Upgrade to X3. As a registered user, the basic version of X3 is the same price as MC6.
X3 Studio is a bit more, but worth the difference.
 
Until a few months ago, I was running a 2.4GHz P4 w/1GB RAM XP(SP3) system. It had an E-MU0404 PCI sound card, and did quite well, until it died. I'm following the same plan I just suggested for you.
I've got X3 Studio, and a decent interface (the Akai EIE Pro).
I'm getting by with a Vista laptop until I can bring a new PC into the picture. With the Akai interface, it is doing surprisingly well, but it's still an interim solution.
Sorry for such a long winded answer, but hopefully it is of some help.
Good luck.

Thanks for the replies guys.
 
I have actually experimented with the sound card but it hasn't helped much unfortunately. When I first hooked my midi keyboard up I was using the internal soundcard but switched to my Behringer USB UCA200 USB soundcard to overcome latency issues. The external card (with ASIO driver) did cure the latency problem but, despite messing around with the driver settings, I do still get the dropout/system hang. I have read that using the ASIO4ALL driver can be better than the Behringer driver so I may try that.
 
So it does seem that my system may be at fault. I'd really like to stick with XP if I can though, as I know this OS inside out and I have some older software that has compatibility issues with newer Windows. The loss of updates and security plugs won't affect me as it will be used purely for music and won't be connecting to the net. The laptop that I have been using up until now originally had the horrid Vista onboard so I wiped it and installed XP, and even large MC5 projects have worked pretty well with this arrangement with or without the external soundcard so I think I may look into replacing the motherboard and CPU with plenty of RAM.

UPDATE
 
I took the plunge and decided an upgrade was the way to go, so I scoured Ebay and bought a recycled Dell PC with a 2.33 Ghz Core 2 Duo and 2Gb RAM running Win XP Professional for very little money. The difference is immense. Even my most vst synth-heavy projects have the CPU meter showing around 17%-20% capacity, the playback is flawless and I can play 8 keys simultaneously on my MIDI keyboard without a problem. I think the only thing I need to do now is upgrade my Behringer UCA200 for a better sound card as it has developed a high-pitched oscillating whining noise (a common problem apparently) which is really obvious on my studio monitors.
 
 

I've just replaced the UCA200 with a Lexicon Alpha and first impressions are very good indeed.
 
Installation was simple, Music Creator had no problem finding and utilizing it (the UCA could be problematic, sometimes requiring several software restarts) and the sound through my monitors is excellent - clear, controllable and with no background noise. The software interface is also uncomplicated and latency is very good with no noticeable delay when using my MIDI keyboard to play a soft synth VST.
 
Happy days!