Setting it to use Idle cycles doesn't mean it uses less CPU power.....if you set it to idle cycles and you let the computer just sit, it will use 100% of the CPU to fold. When you try to access something, the folding will scale back and give whatever task you are doing priority.
There is also a setting to lock in the maximum amount it can use. You can set it to idle cycles, but no more than a certain percentage of the CPU idle cycles if you want.
My guess is you have the console improperly configured for what you want to do, as folding should not cause any kind of slowdown unless you have it set to something other than idle.
Go into the configuration options by using a shortcut to the folding program with "-config" on the end of the target (without the parenthesis).....say YES to change advanced options. Now, be sure the setting for cycles is set to IDLE, and then right below that there should be a setting for percentage. If you never want it to take more than 50% of your CPU, set it to 50. If you want 75%, set it to 75, 100 will allow it to use 100% of the idle cycles only (no slowdown)
Folding is most effective if let to use all the idle cycles, afterall, they aren't doing anything else. If you have another reason for not wanting it to run at 100% whenever it can, like a cooling issue or power concerns, that is one thing. But if it is just because it appears to slow down your computer, then I would advise that once you have it configured properly, that should not happen, and it's possible that something else is causing the slow down.......
EDIT: I just took note of your RAM, it states 512MB only. I forgot to mention that RAM useage of folding does not scale like the CPU useage, so it's possible any issues you are noticing are because of your RAM availablity.
In the advanced options there is also a setting to lock the amount of RAM folding can use, however, even if you lock it so it can only use 1/2 your RAM, you may still see some issues depending on what other program you try to run.