Thanks a lot, guys. I think I found out what the problem is. The tempdb right now is on C:, which is where the main i/o outage happens. My plan is to upgrade data drives and move all the system dbs there. 

While I'm here, is it advisable to consolidate several small servers to a more powerful one? We have a bunch of these meager servers with 2/4 cores and 7/14 GB ram. I personally want to consolidate them, but I'm not quite sure about the performance impact of the consolidation vs isolated servers. These are all new servers we inheritted from a new company acquisition and I'm not sure where the servers' performances stand.