It sounds like you have reached a memory limit in your current configuration. We have experienced some of what you are referring to and have worked through most of it with applying service packs and CU patches but we still get them periodically. There are certain aspects of SQL Server such as query plans, procedure cache, sorts, etc that can only operate in the physical memory area of the server (virtual address space - VAS) so, with that being said it is some number less than 2 Gig in the 32-Bit world, which I am guessing you are in. That is one area that will typically see pressure first in a high activity environment.
If you can add more memory to the box and give SQL more that might be a possibility. Additional processors might allow for things to get in and out of memory faster allowing for more throughput. There is a good white paper on diagnosing memory pressure and other performance issues that you can find here - http://www.microsoft.com/technet/prodtechnol/sql/2005/tsprfprb.mspx - which I would recommend reading through. A more generic article can be found here - http://www.microsoft.com/technet/prodtechnol/sql/bestpractice/oltp-performance-issues.mspx
I will say too that if you have not installed CU8 then you should consider that as well as we saw some noticeable improvements with that Cumulative Update.
“He is no fool who gives what he cannot keep to gain that which he cannot lose” - Jim Elliot