Ok...here's the deal with Photoshop. It does in fact love to eat up Ram. And it does in fact have a 2Gig limit...however... if you have 1.2 gigs of available Ram, and Photoshop is running as well as the OS and other smaller apps (maybe mail, or whatever else may be running in the background), then Photoshop is really only using about a Gig of that Ram. Photoshop cannot and will not use all the Ram available on any machine because then the OS would'nt be able to run in conjunction with Photoshop. So, in this case, 2 Gigs of Ram would mean that Photoshop would likely use about 1.8 or so of it, and leave the rest for the OS and other functions. My G5 has 1.25 Gigs of Ram and Photoshop seems to really fly, however, at work, my G5 with 2 Gigs beats the snot out of my home based mac...and the Ram allocation is the only difference between the two. Ram is always the best option to upgrade first when doing any kind of photo or video editing. Ram will always be faster than any Harddrive. Take a look at Ramseeker.com. There you can find some really great deals on Ram for your G5.

VegasMac...
-Out

VegasMac is absolutely right. Check your Phoshop preferences: Memory & Image Cache settings. The Maximum Used by Photoshop is probably set at 67 %. Quit other applications and increase that to 80%, then restart Photoshop. See if that relatively small increase in RAM used doesn't make it faster. Notice too that the available RAM is much less than 1.2 gigs.

While all applications will benefit, few will see as big of a performance jump with increased RAM as Photoshop. Buy more RAM!!! You won't regret it.

"Buy more RAM!!!" -- haha! ok - I will!
I also went ahead and picked up softRAID -- it just seemed like a good thing to have. I am going to experiment with partitioned and non-partitioned scratch disks over firewire and I'll post the results once I get around to doing this.

Let us know how the extra RAM does too.