One thing I've found can sometimes speed up 'Cuts' in AI is fooling around w/ the settings under:
Prefs > Files & Clipboard
It is VERY unlikely that AI will use your scratch disk at all unless your file expands to larger than say: 500+ MB in memory, meaning, when it's open.(That would be a Gigantic file) And since you have 768MB, and your OS takes around 256 (when greedy) you should be fine UNLESS
Your RAM is damaged / your OS has a problem.
You can check your RAM usage by toggling the display in the Status Bar (lower left) to 'Free Memory'
If your RAM is overclocked or cheap, it would could cause stalls like this as well, as the dirty memory has to be scrubbed and rewritten from disk.
With that much memory, unless your RAM is ALL in use, you should never even see your hard disk light flash unless you open or save.
Also, w/ 768MB you must have an uneven number of sticks of RAM, which for some types decreases their performance, or makes them unstable, also, some brands aren't that tolerant of different speeds/ sizes of Ram, so that 2x256DDR is faster than 3x256, but not than 1x512MB.
I would suggest running RAM tests using SiSoft Sandra (The personal version is free)
Sef.
It is alright to decorate construction, but never construct decoration. - Pugin, on Arch.