Yep, just changing the screen size back to 800x600 improves things dramatically on my end.
Anyway, I've always been a firm believer that 1024x768 is way too big for a windowed game. Sure, a lot of people have big monitors or high-res screens, but not everyone. 1024x768 is fine for fullscreen, but if you're going windowed I wouldn't go any higher than 800x600 or you're going to annoy some people.
And I think the game looks and plays fine at 800x600, the screen size is just about right that way imo. Just my two cents, though, you can do whatever you think is best