Both the CPU and the amount of memory will affect your computer's performance.
In your case, I would probably buy more memory, if it's either one of the two. 800MHz is fine with XP Pro, but XP pro on startup (with the usual background processes and applications such as antivirus) will probably take up the whole of your 128MB memory, and that's before you open a couple of applications. Your computer is constantly using the hard disk for virtual memory. Access to the hard disk is much slower than RAM memory.
You can make do with 256MB, but would be nice with 512MB.
Upgrading to a faster cpu, but with only 128MB, running xp, will not give you much help, because your computer will still be accessing the hard disk to use as virtual memory.