I am exploring Verdistis. I entered a house, and a cutscene began, with a woman warning me not to enter the noisy room where a fight was going on. I entered, slayed a monster, it dropped some gold. The woman is standing behind me. And the game is locked up. Totally. I cannot pick up the gold. I cannot move. I cannot even save the game.

When you load a game, what version does the load screen show ? (see attached image) What you describe was common in the unpatched version, not heard of this problem from anyone on the new release.

"1 00 5 A " is the version showing. If that's not the latest, there's something wrong, because when the supposed "patch" arrived, I deleted the game, then downloaded it again. I practically had to use a microscope to read the version. The game either makes everything too small, or too big.
I just reloaded a save (again--- you reload more than anything else in this game)
and went in again. This time I refused to fight the Demon, he killed the girl, and attacked me. I killed him, and scooped up some loot. Too bad, she had some interesting trade items.

What video card are you using? Is it a card or integrated?

Short answer: Nvidia GeForce2 MX/MX 400
My computer is an antique. A Gateway 500 C desktop. Back when I bought it, I was stupid enough to believe the "free lifetime support" people. Every time there was a problem, they wanted me to reinstall Windows XP. Or, they insisted I had a virus. They never admitted that they had ripped me off with a hunk of junk, but that's the case.
When it became obvious that the video card was garbage even when it was brand-new the friendly thieves at Gateway offered me an upgrade, for a large chunk of cash, to a supposedly-better video card. Come to find out, this card was notorious far and wide for making a HUGE rattling fan noise, and for burning out.
Of course it burned out, and I ended up reinstalling the original card:
Nvidia GeForce2 MX/MX 400

I am using this card as my reference for your card. Because it has only 128 MB of memory, this may be the cause of many of your problems. It does meet the minimum system requirements but the 128 MB will give you less than desirable performance.
I would check my installed driver date to see if it is the last version offered for this card. The last offered was Version: 93.71 WHQL Release Date: November 2, 2006.
If you right click your desktop, click Properties on the resulting dialog, click the Setting tab, click the Advanced button, click the Adaptor tab and the Properties button on that tab, click the Driver tab and see if your driver version and date are the same as the last driver released.
If not the last driver Nvidia released is available for download at this link from Nvidia.
If your driver is the latest than I would recommend that you upgrade to a better card as that, IMHO, is the cause of many of your problems. An AGP card may be hard to find but you might have a PCI slot open which will be easier to find a card for. DO NOT buy a PCI-E or PCI Express card as that will not work. Make sure you remove the AGP card if you install a new card.
I would get a minimum of 256 MB of memory with 512 MB being readily available. I just recently replaced my 256 MB with a 1GB card for around $120. Amazon has a 512 MB AGP card for $45 at this link. If you have an open PCI slot you may be able to find a newer version something like this card I am not recommending these cards . . . only using them as examples of cards you could replace your current card with. Read the user reviews on any card you might buy. . . .=)
I know everyone has different circumstances, myself included, but replacing this card would be a major update for your system I believe. Your RAM might also be a good thing to look at as well. You can download a scanner tool from Crucial Memory that will tell you what kind of memory your system uses and how much you can add. The max for XP will be 4 GB. Some of the older Gateways only had 256 MB or 512 MB of RAM. Upgrading your video card and maxing out your RAM might worth thinking about and would help your system run games better as well. (There also may be a limit on how much memory you system will accept)
This is the best advice I can give you concerning your system . . .=) . . . I believe you would see a noticeable change in performance with a video card upgrade and even more if your RAM was maxed out . . . =)
Edit: It might be worth downloading and reinstalling the last available video driver since you might have some corrupted files which would be replaced by reinstalling the driver.

I'll point out a couple of things here:
1. The GPU might be on board and uses the system's RAM rather than having its own.
2. There might not even be an AGP slot. Back in the days before I built my own computers I bought a system with an 'AGP card' which turned out to be on board - there wasn't even an AGP slot. Gateway have a reputation for being cheap above all else. It wouldn't surprise me if some serious corners have been cut and subsequently upgrade options along with them.

I was assuming his comments indicated it was a card . . .=)
"When it became obvious that the video card was garbage even when it was brand-new the friendly thieves at Gateway offered me an upgrade, for a large chunk of cash, to a supposedly-better video card. Come to find out, this card was notorious far and wide for making a HUGE rattling fan noise, and for burning out.
Of course it burned out, and I ended up reinstalling the original card: "

Well that's good. Although that does raise another issue that's notoriously common in pre-built systems: the PSU. Chances are it's only barely adequate for what's in there. It could severely limit the upgrade options available.

I think he is more than ready for a new box . . =) . . it was old enough that I couldn't find the spec card on Gateway's site.

Oh hell yeah. He could upgrade to an infinitely better system for a very low price (if he keeps the same monitor. Although that is probably on its way out too). The only reason I ruled out the PSU frying the replacement card was because somehow, miraculously, the rest of the system still lives. Talk about beating the odds.

Never know, I still have an old Pentium Pro that still works great . . .=D

Yeah, but I bet it wasn't built by Gateway though, right?

Actually it is a Gateway, back in the day I was getting discounts buying quantities for engineering and I bought one for myself (hot setup at the time =) , it still ran great when I put it in my storage room.
Edit: sitting there with my 486DX/2 66Mhz . . . can't stand to let one go =)