I recently bought a new computer with G25 steering wheel and I am experiencing lag issues that occur in single player (hotlapping) and on multiplayer.

The game seems to randomly just start LAGGING maybe every 10 - 20 minutes. It just starts to sketch out and the FPS drops to like 1 FPS per second for like 5-10 seconds which basically ends the race for me because my car just slams straight into the wall by the time it's done lagging.
My computer is good enough to run Crysis at HIGH settings and that game runs flawlessly for me.

I want to purchase the full license to this game but this lag issue is seriously a big issue.

System specs:
Intel e8400 C2D 3ghz
8800GTS
2 gigs of ram
Windows XP

I don't have any issue's with any other games

I would appreciate any help thanks.

Nice specs!

I would think the most obvious problem would be drivers / Direct X.

My brother-in-law had a problem with his 7600GT freezing in games. Maybe you have a similar problem just less intense, so maybe it's a hardware problem instead.

If you have spare parts, try swapping stuff back and forth to see if you can narrow a problem down. (Try a different video card vs. hard drive / RAM or etc. be creative.)

http://www.lfsforum.net/showthread.php?t=41686

What you describe, seems similar to what is discussed in the thread, linked above; a proposed "solution" is included, although the actual cause of the problem, remains unidentified - so, if you figure out the cause, please be sure to announce it.