Cursor and mouse both appear to run smoothly.
 

jpetersen
So these are only audio files?
 
I was never able to play the Cakewalk demos because the number of plugs just choked my PC.
 
But if it's straight audio - very strange.
 
Edit: does the cursor run smoothly or does it also jump?
Does it run smoothly on WDM? (latency is horrible, just as a check)

John
That brings up the notion that the keyboard pause key has been pressed. Press pause on the computer keyboard. Its a toggle. 2048 k is a too large for your setup. Too large a buffer is almost as bad as too small. 

I pressed 'Pause' and there was no change.

I believe I have Realtek High Definition audio card.  (Came with the HP computer.)  However, when I go into my "sound, video and game" part of my Device Manager, I see:
 
Audio Codecs
Legacy Audio Drivers
Legacy Video Capture Devices
Media Control Devices
Realtek High Definition Audio
Video Codecs
 
Is it possible I picked up a virus somehow and these extra drivers are compounding problems?  I don't remember there being so many devices there when I originally installed Sonar 8.

I also updated the RealTek firmware and the problem still persists. 
 
Would you advise re-installing Sonar at this point?

Realtek is not the greatest soundcard. Im surprised you had better results using X2 because X2 did not support Windows XP 's system requirements. With that said, if your only listening to audio and not recording try switching driver modes to MME or WDM. With out a good soundcard your going to have to jump through some hoops to get low latency/ non choppy audio.
 
When investing in software the second priority should be the soundcard. it is what directly effects the relationship between the software, hardware and PC.
 
In other words, not a good soundcard= not a stable system.

Things have changed so it's real hard to trouble shoot. Most of us can only work from memory of issue we had wayyyy back then. But sage advice has always been you need a proper audio interface and most important, good ASIO drivers to have Sonar ( any version) to run smoothly. 
The issue you are having I would say is because of audio drivers or the lack of so to speak.