Well, after a look at Asus's website, it appears that they don't have Windows 7 drivers for that particular model, unfortunately. Only XP drivers.
Windows 7 does the best it can to provide basic functionality with the generic drivers it installs, but you really need the proper ones (chipset, audio, graphics, touchpad, etc...) to get full functionality.
Yes, it would possibly run better with 2GB of RAM (I upgraded mine), but without proper drivers, you aren't going to see much of an improvement.
Windows 7 is a great operating system, but it can't be enjoyed to the full extent if you don't have the proper drivers. It's just going to stutter and choke, especially on a netbook.
I would recommend you go back to XP as Asus does not provide Windows 7 support (i.e. drivers) for their older netbooks (as opposed to the new ones coming out with Win7 Starter preinstalled).
Sorry to be the bearer of bad news.