donny - yeah, this seems to be a fairly unique issue (I've never heard about before anyway - do a quick forum search if you have not for "demigod mouse" - I figure you have, but just a thought). I'm really thinking the problem is specifically related to your pc (eg hardware/drivers). Sadly, based on the info you provided, it certainly seems like you have more than enough power to run the game. This makes me think you have a hardware issue. I'm also guessing that other games run fine, etc - and you just happen to have a problem with Demigod. That said, I still think its a hardware problem. Of course, I could be wrong, but there's nothing that I'm aware of that would cause latency in a local game of Demigod on the lowest settings (and note - I said local (no internet) game - assuming that's what you are doing).
I'm sure that is less than exciting news, but I'm not sure what else to tell you. You sure as shite shouldn't have to consider installing another OS to get Demigod to work. I really just think you have a unique (lousy) situation. heck - see if you can run the game in safe mode if you haven't tried that rot yet.
I've built more than 80 pcs and have seen some crazy nonsense in the past. That's what's leading me to think there is a hardware issue (that might just start with Demigod now - and that you'll notice somewhere else down the road). From that experience, I'd suggest a new motherboard. Again, not all that useful advice, but I think that would sort you out (+ a fresh install).
Anyway, if you want to go the path of least resistance, you should shoot an email to [email protected] and indicate that you bought the game on impulse/steam and that is doesn't run on your system and you want a refund. Personally, I'd suggest going that way - even though Demigod is a great game.
Hope your problem is solved one way or another and I'm really sorry to hear that its been such a pain in the butt for you.