My organisation has been facing serious performance issues with regard to our production server (IIS 6.0)

We have about 120 applications (90 % .NET rest are classic asp apps) running on a single box. The configuration as follows:

2.6 Ghz (8 processors)
4 GB ram
32 bit OS

We seem to face this issue during peak utilization hours (hence i suspect a load issue). We have conducted load tests and figured that the server degraded in performance with a load of 500 + users.

I used the perfmon tool to analyse memory utilization. Noticed that memory utlization stayed pretty much constant at 100 % ,however this is true even during non peak hours and the applications seem to run pretty fast.

Again over all memory and CPU utilization is below normal levels, hence have ruled out hardware or OS as an issue.

I am thinking of distributing the 120 applications accross multiple servers behind a load balancer as a final solution to this issue.

Can anyone provide their inputs perhaps with reference to personal experiences while dealing with similar issues.