My company has been running a large project on Delphi for more than a decade. Our codebase has been growing over the years and now stands at around 4 million lines of code. Comp
The gradual performance degradation could be due to some sort of memory leak or other bug in the compiler. Heaven knows D2005 and D2006 had enough of them! If you can't upgrade to a Unicode-enabled version of Delphi, you ought to at least update to D2007 (which I believe is still available from Embarcadero) for better stability.
Also, as Robert Frank mentioned in a comment, check out Andreas Hausladen's tools. Just a few days ago he released a patch that improves compilation speed quite a bit. Unfortunately, that specific feature is apparently only for D2009 and later, but a lot of his fixes help speed various things up, including the compiler.