Graphics!
Excuse me, I'm sure this has been said, and I am glad that it is running better now that you upped the RAM but,
Photoshop & Illustrator are not meant to run well on stock configurations. Graphics work is RAM intensive and if you are going to run Pro apps, you need to approach the machine that way. Just think of your file size and the number of undo's and redo's you want at your disposal.
Second, we all know, or should if you do graphics, that Adobe has not gone universal, and even with the appropriate amount of RAM, those apps will run slower in the Intel world than PPC.
I have a 6 1/2 year old G4 450mhz with 768mb RAM that runs CS2, and while it runs, let me tell you it is slow when I work on a 275mb file with 75+ layers, but it still runs, though I'm sure slower than your iMac in Rosetta.
One thing that a lot of people forget is that as OS's have evolved over the last 10 years, they use more RAM just to run the base OS, no apps even open. Besides the cost of RAM decreasing, that is one reason computers come with more, just to load the OS and run primary apps. Stock configurations are not designed for power users, they are designed for consumers, every day people who don't spend as much or more as they did on their computer on things like CS2, Studio MX, or FCP Studio.