Is it possible that switching Windows XP to 120 DPI would have negative impact on computer performance? Namely, I see Acrobat Reader starting much slower. Could maybe the font cache run out of memory on the video card, forcing the CPU to work harder and thus overheat, eventually bringing the performance of everything down, or similar insanity?
Based solely on what you wrote in your question, it appears that the answer is yes.
"I see Acrobat Reader starting much slower"
By the way, in my personal experience, using high DPIs has not caused any significant system lags.