HL Server lags at 8

[HalfLifer]

Ok, I run a HL server for my friends to play on every once and while at night. The thing is, the server lags at 8 people! The FPS window drops to 65-75 and pings go up, come down...someone throws a grenade and ping goes up. The connection isnt a problem as my upstream is above 1mbps. Ive added sv_maxrate 5000 to server.cfg, and run nothing in backround. I have Windows 98, Pentium 2 400, 128mb ram, and 97% resources free.

Any clues?