I've been playing this game for well over a year now. Always had 60FPS+ on this system:

e2180 @ 2.30Ghz
2GB DDR2
8600GT 512mb
Vista 32bit

Currently running Z17, but I tried with a clean version of LFS, and still had the same issue.

I haven't played the game for the past week and a bit, but now I play it this weekend I have quite a strange bug.
My FPS starts at 60, 70, 90+, racing fine etc.
Then the FPS drops to about 10 for roughly 30 seconds.
This happens every 5-ish minutes.

Normally I'd try to find a solution. I ended nearly all processes on my computer, (leading to a BSoD at one point :>). Installed new drivers. Uninstalled BitDefender. I thought it may be caused by Firefox popups with the Echofon addon, but nope. I only have Firefox and mIRC running as the two main applications. Playing with everything closed doesn't make a difference.
Checked to see if there was huge disk read/write during the laggy periods, but I do not think there is. The only thing I can think of is some sort of buffer LFS has? Perhaps to store replays? temp.mpr?

If anyone can help, it'd be greatly appreciated!

i had the same problem about a month ago, lasted about 4-5 days then it cured itself, Or i cured it unknowingly.