I can't read the entire thread now, but have you actually tried benchmarking the system? Phil's VGA benchmark should be a pretty good tool to find out if you've got a speed deficiency, try some of the later 3D tests such as Quake and PC Player Benchmark.
A CPU can't be half-dead. It either works or it doesn't and they usually die hard, unless you have one with an exposed die (think socket 370 Coppermines and socket A Athlons). Motherboards also have components that die, but that won't affect speed, the component will just... die. For example, the southbridge which contains the IDE controller can die.
Don't give up on this, but expect to find that perhaps this is how the system performs. I'll see if I can install my Pentium 133 on a similar system and see how it performs on an S3 Virge, but I don't have a Rage II unfortunately. I'll try Tomb Raider 2 and maybe we can compare that way.