I get to the animated screen with the options and it only runs at a frame every few seconds and the sound skips and hangs. Ive reinstalled the game and installed the newest video drivers. Im not having a problem with any other game including Portal.

I had no problem with Episode 2 although my gaming specs are a little better than yours but not that much. Have you tried what Steam suggests here? Steampowered (https://support.steampowered.com/kb_article.php?ref=9257-TUJL-7421)

Edit: I ran my game at whatever settings the installation defaulted to so I don't know why your experience would be so different.

I booted into my Vista partition, keep forgetting I have it, and Episode 2 runs perfectly. I had the same problem with Far Cry. It wouldnt play in XP Pro but would in XP x64. Im guessing a chipset or video driver issue.