Personally i would install Linux on it, I'm using Linux mint
http://www.linuxmint.com/(ubuntu based) on my old laptop and it works perfectly, and far faster than it ever did with XP .
If you do decide to keep Vista you could do a "nuke and pave" installation, reformatting your hard drive at the same time, which should sort out any issues.
you'll have to make sure you have all the files pictures etc you want to keep copied to a disk or whatever as this will wipe the hard drive completely.
I haven't done this on a vista computer (yet
) but i guess its basically the same as xp.
first you'll need to set the computer to boot from CD, to do this you start up the computer then on the start up screen you will notice a message which will say something like : to change boot order press f12 , hit the key it mentions and you'll be at the bios screen (usually blue with white characters), on there you'll see the options to change the boot order.
Once you have done that exit the bios (make sure your installation disk is in the drive first) and it should start up the installer (it may ask you to hit a key) once its installed a few setup files, it will display your partitions. Delete any existing partitions by selecting the desired partition with the arrow keys, press D to delete and then L to confirm the deletion.
You should now have only one option, "Unpartitioned Space". Press Enter to install windows to the unpartitioned space.
It will then ask how you would like to format the partition, select "Format using the NTFS file system". ( I think the file system may have changed for vista though)