Only Solution To Stop VLC from using 100% CPU Power
also had a 2nd spare computer that is about that old and decided to try streaming and ran into the same problem, tinkered with the setting for about a day until i realized that its the Variable bitrate.
The little "vb= .." Setting is the only parameter that actually decreased the CPU load. Comparably to your computer, mine CPU was about 1.6 Ghz, and to keep the PC around 70% - 80% i had to lower the bitrate between 100 and 120 .
Then you need to adjust the FrameRate, and Resolution to try an compensate. But you you will have to understand that your computer is inadequate to take on a task of a High quality stream.
Also i noticed on certain videos that when certain CGI effect occur during video playback will shoot up the the % of usage on ur CPU.
In all tweak all the settings to find your best possible settings, for your computer; but id start with Bitrate.