@ brueggz
Well setting it to manual is effectively disabling it, so if there was any conflict, removing one element of it would resolve the issue but it doesn't determine the true culprit.
The windows XP firewall shouldn't get in the way as it provides zero outbound checking/protection.
Does this happen shortly after boot ?
As with an always on, broadband connection it would be established very soon after boot and avast would detect that and check for updates. However this is still a relatively bust time for the system, so I don't know if this is a contributory factor.
Both our systems are similar I'm using XP but my CPU whilst only core 2 duo at 2.8Ghz and RAM of only 2GB are close enough for comparison. My being on dial-up should actually make things slower but I just don't see it. I also have a resident anti-spyware and my firewall does provide outbound checking, so in theory that should further slow things, but again no appreciable change.
I did make a change to my update check, not because of any problem but to be able to quickly jump on-line and collect email, etc. without the auto update check being initiated. I don't know if that might help you but it depends if the problem just happens on the first auto update check after boot. If you remain connected then avast would check for updates again after 4 hours, if this happens do you notice any slowing at that point ?
As RZPogi mentions (something I forgot) Windows Update can really put a spoke in the wheel close to Microsoft's Patch Tuesday and that was last Tuesday. Me on dial-up I'm noticing it as after 7 days WU still hasn't finished downloading and installing my 8 security updates, 6 done 2 to go.