You don't mention your hard drive setup, which tends to be the limiting factor on single machines runing multiple copies of WOW. In particular, the high I/O (multiple seeks) to a single hard drive when entering crowded areas.

I'm guessing you are using a single hard drive and do not have symlinks (Vista) or junction points (XP) setup?

The single best thing you can do to improve your city performance is setting up symlinks correctly. I finally got off my duff and did this last night on my Windows XP box for my 5-man team and the difference is flat out amazing in Shatt.

Some people use SSD (solid state disk) drives, which have the advantage of excelling at handling multiple concurrent seek requests (since they use electonic and not physical addressing); these are still fairly pricey and should be considered primarily after figuring out how to do symlinks.

The Wiki has information on setting up junction points/symlinks.