I have just about the same number users but only about 10 people on-line on my PP. Considering I only have a 2.4 Celeron and 1G RAM my server still easily handles the load with less then .6 load almost all the time. While upgrading to the lastest versions is always recommended I would suspect your server could be better optimized for php/myqsl.
You may also want to disable some of the optional more server intensive operations on vB
such as displaying Current Active Users on main pages, Birthdays, etc.