Canada, eh?,
I have exactly the same problem and - coincidence or not - with a Dell laptop too (D505, Centrino 1.7GHz, 512MB, XP+SP2). I installed an XP guest on an XP host and every 3..4 seconds the guest freezes. I have also tried: with ot without VMware tools, reinstalling the guest, reinstalling VMware, reinstalling the host, disabling speed stepping, fixed the timing, disabling DVD, USB, PCMCIA controller and the WiFi. No use at all.
And it is very annoying because:
1. I watched the performance of both machines (host and guest) at high speed. During the freeze time, the CPU used by the vmware-vmx process on the host drops to 0 (leading to almost 99% idle), while in the guest the task manager freezes too, but when it comes back it looks like nothing has happened;
2. Because of these "freeze points" the Windows input events are incorrectly processed: some keys input from the keyboard are lost, some keys input from the keyboard are duplicated, some mouse clicks - or, more specifically, mouse button ups or downs - are lost. This mouse behaviour results into a very, very ugly Windows behaviour: clicks are forgotten, clicks become drag-and-drop, drag-and-drops can't be completed, and many other.
Beside this... the guest works Ok and the host is not influenced of such problems.