Your machine slows down when the total amount of OS + apps + data RAM requirement exceeds the amount of physical RAM you have.
If you were never exceeding 512 Mb before (that is, you were religious about quitting programs when you weren't using them, and you weren't running programs that require Rosetta) then the change from 512 to 1.25 Gb would not be apparent -- coz you were running as fast as you could in the first place.
In the case where you exceeded 512, such as Logic, you should see a difference in the performance of programs when you load up enough to exceed 512 Mb but less than 1.25.
If however you regularly exceed 1.25 Gb RAM, you are right back to using VM again and the machine will slow back down.
Your PageOuts look healthy, but I suspect you hadn't run the machine very long when you took the screenshot. Have a look at it again once you have used it for a day, and have opened your normal load of programs and used them.
To the other poster -- PageOuts should be under 10% of PageIns, and preferably under 5%. If yours is 300 vs 10,000 then you're good.
As mentioned, running two screens off of the shared video loads the machine down and consumes extra RAM.
Also, running background processes like folding, antivirus or P2P apps, consumes RAM, CPU and network bandwidth. Dashboard widgets consume memory, reduce the number you have loaded.
Run DeLocalizer if you haven;t already and see if you can free up another Gb on your hard drive by deleting foreign language resources.