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I have uninstalled this game then did a clean install using the original installer and did NOT use the patch. Graphics are back to silky smooth, no lag whatsoever.

It's the patch.
Mine ran very poorly right out the gate. The patch merely made it worse.
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MischiefMaker: I have uninstalled this game then did a clean install using the original installer and did NOT use the patch. Graphics are back to silky smooth, no lag whatsoever.

It's the patch.
Perhaps in your case. A cursory glance at the other posts in this thread will tell you that the rest of us had the problem before the patch.
You guys with the poor performance, do you have Aero on? I don't.
I also have this wierd video lags since new patch, it was fine before. Also win7 64bit, aero off.
Dont know if this helps but try to force vsync off. It helped me but i have the dot emu version.
(sorry for my bad english)
Neither version is perfect, but there is definitely less lag on the pre-patch version for me. Plus the ugly gray border around the screen is not there either.