I never use Word, so I don't know what normal is, and if you didn't use the M.A. utility, at least that isn't it.
I had 1GB and it was always using 800-950MB pretty much no matter what. And when I am scanning and such I need and see 1.4GB used.
OS X is using memory behind your back to cache windows, files, disk I/O. I don't see any page outs now.
Disk drives make a huge difference on performance, responsiveness and perceived zip. A slow drive can hold things back, and most find the OEM drive to be sluggish. I chose the 160GB drive (a dog) and replaced it with WD Raptor and RE 320GB drives. Raptor for boot drive, 2nd drive for home directory and files.
Word runs under Rosetta. There were some updates I think. There was one for Quicken 2006 that helped. Having two PPC programs running did seem to be terrible. The next OS update is suppose to improve on Rosetta.
If I had $500 to try to solve this sluggishness, I would look at one or more of:
150GB Raptor $275
2GB RAM $499
2 x 250-320GB drives $200-270
2 x 74GB Raptor $175 each
$240 for FW800 backups (but I assume you have that).
Did you keep any of your old SATA drives from G5? or are you still using it? That would help, but you need to reformat and repartition to change from the PPC-APL scheme to Intel-GUID.
With PPC I would use "Applejack" to delete the main Library and System Library cache folders with each and every OS update, or after a freeze or cache and let them be rebuilt.
Any or some PPC startup items or background tasks? those can also hog cpu and memory slightly.
Keep your Activity Monitor open (launch on login) and watch memory and cpu in the dock and on screen and see what is happening and where the hold up might be.
I don't think RAM will help unless you are paging out, and are seeing 1.6GB RAM in use regulary. I generally have 1GB free though. That is really using a lot of RAM. Take a look in Activity Monitor, click on "Real Memory" and see who is hogging it.
Spotlight: you know, it just does not faze that 10K Raptor - at all. FW drives, yes, and I turn it off (Privacy) for each. Does not seem to affect WD RE 320GB either.
Shame RAM is going to stay at current prices longer than expected, but you probably need more. And need a disk drive or two.