My mate had the same problem when he hit Dalaran (it had all been silky smooth in TBC and in LK up until Dalaran).

He had a Q6600 (overclocked to 3.2ish) with 4GB RAM and a 512mb 9800GTS running Vista32.

I visited him last week and Dalaran was unbelievably bad, totally unplayable with 5-clients.

First thing we did was install the Win7-64 beta, which improved things a lot. The whole 4GB was available and Dalaran was almost playable but not quite.
So, he bought 8GB RAM and, in his own words...

8Gb installed and things are looking smooth. It's still not perfect though.

I ran around a very busy Dalaran with no follow drops, but my main hovering between 12-20 fps, while the rest sat solidly at 15 fps.
My memory/CPU gadget was showing RAM usage under 6Gb, but the three cores were all hitting 100% from time to time.
So it looks like I've gone from memory bound to processor bound.