Also, running the game from a USB drive worsens the problem. The best performance I have found yet was running from my internal hard drive with Microsoft Security Essentials real-time protection DISABLED. Of course, I still experienced micro-stutter but it was not freezing for 10 seconds at a time anymore. Not a permanent fix, but it worked for me.
I also tweaked my GFX card settings and messed around with the D3prefs file to no avail- it's a serious glitch! I think that the fire textures are broken perhaps?