I am using the canvas but only with a few TextOuts. You know, framerate and a few other variables. I gave it a go and commented it all out but I still got the lag.

I didn't have any problems when I was using 640x480 and 32x32 sprites but I recently upped it to 1024x768 and 64x64 sprites (which are all 255 colours). I'm just presuming that other people have wrote games working with this res and this size sprites without the whole thing coming to a standstill? I mean theres only 4 or 5 images being drawn on the screen, whats gonna happan when that number goes to 10 or 20+