The OS may not be a factor. Personally, I would recommend at least upgrading to Snow Leopard. You'll find a lot of software is starting to require Snow Leopard or higher.
First thing: 2Gb of RAM is probably the limiting factor. It might be worth buying as much as it will take (6 Gb: 1 x 4Gb and 1 x 2Gb modules) and putting that in.
You may have some software eating up all the CPU and memory. Use Activity Monitor in the Utilities folder to see what processes are running, and if anything is hogging. You can sort the columns by CPU% and then Real Mem to see what's the biggest.
Next: how much hard disk space do you have left? You might want to buy an SSD and replace the hard drive. It's quite easy on those MBs: take out the battery, undo some screws, pull out the drive, unscrew it from the caddy, screw the new one onto the caddy, slide it back in, screw up the plate, put the battery back.