Posting from my WinXP now, installed 10.7 drivers, and works like a CHARM, even on my crippled XP.

So this is now officially a Windows 7 problem. All we need now, is to pinpoint what the culprit is in win7... Any suggestions?

Oh, and from now on, I offer a reward of $10 directly to the paypal account of the person who can provide the solution for this mystery.

Well, it's good to hear that you can at least enjoy the game The fact that it's working on WinXP still doesn't entirely rule out drivers problem, but since this issue affects people with various hardware configurations, perhaps there are few other things we can try.
Limit FPS in LFS to 60 (Opitions>Misc>Limit FPS) and run the game in window (SHIFT+F4). Open Task Manager and set affinity of LFS.exe to core 0 (rightclick the LFS.exe process > Set Affinity > make sure only one core is selected). Now monitor the CPU usage as you play. Look for some apparent CPU spikes like core 0 suddenly jumping to 100% when the minifreeze occurs.

Ok i'm back on Windows 7, and tried what you said. I set affinity to core 0 (and after that i also tried 1, 2 and 3 subsequently), also tried the priority, set it to real-time. This didn't help, but more frankly, there are no spikes whatsoever when playing the game. It only asks for maybe 10% of total cpu power, so roughly 40% of the one core. On the minifreezes, no irregular behaviour can be noted. It's clear that only 1 core shows a changing graph, but it never reaches 0 or 100, it stays between 30~50%.

Win7 (+vista) has an entirely different driver model to XP and most stability problems are caused by driver issues. Is your XP 32bit or 64bit?
Also, you could try a clean install of Win7 if you have a spare drive - no need to enter a key or activate as you only need it for testing.

The windows XP was 32 bit. I'll see if i can make an extra partition for another windows 7 installation. Or maybe I'll install it on another windows 7 x64 rig, see if the windows -> hardware combination makes any difference.

Well it seems like i have found at least one culprit.. APPLE. Damn them.

I did not go deep enough when shutting down all non-essentials. So I disabled all i could disable without crashing windows, and after that the game ran alot smoother. It's still minor glitches, but playable at least. After that, I began a search on eliminating the process by shutting stuff down one by one.

Turns out, all those iTunes and apple helpers, bonjour service, mobile device service, seem to screw things up. Threw them out, and voila stuff worked. I'm now going to delete all Apple stuff I can find.

Does anybody have any explanation as to why oh why Apple can have such effect on LFS? I can honestly not see any connection whatsoever.

EDIT//

No sorry I was wrong. It's not the Apple helpers on their own. The game ONLY becomes playable if i shut down everything else. Like EVERYTHING, antivirus, soundcard managers, controller managers (including G25 profiler), lots of services, EVERYTHING. This is obviously not a solution, but at least a cause has been found. Maybe somebody can come up with a solution, other than having to install 1 perfectly clean windows just for LFS?

OK i solved it. Fresh win7 install worked fine, then got back to my old win7 install, got very mad and deinstalled everything i did not need. Did a drivercleaner sweep of all old drivers, threw it all out.

The problem was either:

Acronis True Image Home
nVidia Physx (came with 3dmark vantage)
3dmark Vantage
Creative sound drivers (leftovers)

Threw that out plus some other stuff, and now it works fine.

Thanks foor all the suggestions!

i hope scawen comes and sees what he can do, as a fellow windows seven user

The Creative sound drivers are most likely the issue, quality of Creative drivers has never been a top notch. Good news is that it worked for you on clean W7 install, which means that this problem is very likely not within LFS itself...

Yes they were probably. They were leftovers from my X-Fi Elite, didnt uninstall properly. LFS now runs fine on my regulat windows 7.