Sorry I don't have a solution. I'm having exactly the same problem, and have been through the same attempts at fixes. My machine is of similar vintage: it's a Pentium 2 450MHz with an STB Velocity 4400 (TNT) 16Mb video card. The nvidia driver installed flawlessly (several times...), and 3D acceleration is excellent. I can finally do some serious OpenGL work on this old tank, and my hat's off to NVidia for that.
OTOH, 2D is really slow: judging by the way the CPU gets hammered whenever I move a window, I'd say there's no 2D acceleration at all, and no amount of fiddling with XF86Config has helped.
On the "bright" side, I've seen some posts that indicate some folks with much newer cards are having the same 2D performance problem, so hopefully it's something fixable and not just an "old card" issue.