This is a strange ongoing annoyance I have. I use the "autohide" feature for my taskbar on my Win98SE system. At some point, I think it has to do with video drivers, my taskbar stops moving in a rapid manner when hiding and instead kind of "creeps" up and down...weird. I have learned to ignore it until I built my wife's system and it did the same thing. We are both using Hitachi monitors but that is about the only thing similar.

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Asus CUSL2-C Motherboard
Pentium III 933EB w/Golden Orb
256MB PC133 SDRAM CL3
Creative Labs Annihilator2
Creative Labs Soundblaster Live MP3+ 5.1

I doubt the drivers are at fault here. Drivers typically don't have the least amount of problem handing the GUI framework. If the toolbar starts getting slow, then it's probably because a lot of the memory is already paged out, and Windows is busy doing other things instead of calling up the taskbar. The auto-hide feature of the taskbar actually causes Windows to use a lot more resources than it does when it's static.

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"And knowing is half the battle!"

Well, I installed WinME and didn't have that problem, but I had serious mouse problems with my MS Intellimouse optical. So I went back to Win98SE. I had to choose...mouse problems or taskbar oddity....I chose the taskbar.

So you think it's Windows using resources? That makes sense somewhat, but why didn't it do it in WinME and why does it not do it before installing the video drivers?

__________________
Asus CUSL2-C Motherboard
Pentium III 933EB w/Golden Orb
256MB PC133 SDRAM CL3
Creative Labs Annihilator2
Creative Labs Soundblaster Live MP3+ 5.1

Spooky: your mouse wouldnt happen to um skip across the screen whenever you try to move it? About a month ago I tried windows me and the very sec it started up the curser was extremely slow, it was as if I had a 500ms delay between the mouse and the computer. I switched right back to win2k after that hehe.. win me sucks!

Yea...the mouse problem I had was with WinME. They don't support the Intellipoint 3.0 or 3.1a drivers. It tells you to download the 3.2 drivers, but that is what causes the jerkiness. Until Microsoft fixes their Intellipoint drivers for WinME, I will stick with Win98SE.

__________________
Asus CUSL2-C Motherboard
Pentium III 933EB w/Golden Orb
256MB PC133 SDRAM CL3
Creative Labs Annihilator2
Creative Labs Soundblaster Live MP3+ 5.1

Are you using your Intellimouse on USB? If so, switch it to PS/2. USB may have bandwidth, but it's also fairly prone to system sluggishness, in that if your CPU experiences a moderate load or your PCI bus is doing something else (A file copy for example), the USB controller takes a step back to get out of the way, and your USB bandwidth suffers as a result. Because of this, the sampling rate on your mouse drops, and sometimes doesn't track at all.
What video card do you have? That may also answer some questions - If you've got some video helper applets or something running, those stubs will slowly trim down your memory space.

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"And knowing is half the battle!"

My Intellimouse is USB, but I am using the PS/2 adapter for the very reason you stated. I wanted to make sure it wasn't a USB interference.
My video card is in my signature....the Creative Labs Annihilator2 GeForce2 GTS 32mb.

__________________
Asus CUSL2-C Motherboard
Pentium III 933EB w/Golden Orb
256MB PC133 SDRAM CL3
Creative Labs Annihilator2
Creative Labs Soundblaster Live MP3+ 5.1

Windows9x OS'es tend to be inefficient in their usage of their memory stack- the same reason it's wise to perform prophylactic re-boots after using your computer for long periods.
As for the mouse jerkiness, what sampling rate is your ps2 mouse set to? Try a utility like Ps2Rate to increase the sensitivity of your mouse.

Do you have "Show window contents while dragging" checked under folder options? That seems to make some difference in how fast the taskbar responds. I believe the original Win95 used to pop up quicker. Then with one of the updates, or with Win98, they changed to the "smoother" autohide action. Try this and see if it works:

Open Control Panel or Windows Explorer
View
Folder Options
View tab
Visual settings
Show window contents while dragging- make sure it is unchecked
Click on OK and see how your taskbar responds.

Hope this helps!