"Can Windows XP really multi-task?" - not that much better than the old DOS "Print" command actually. There's still only one CPU in most systems.
<technical bit>
The number of CPUs doesn't really matter (and several CPU designs allow real 'two things at once' multitasking on a single CPU). What matters is how the operating system uses the CPU.
There's much more power than you really need in almost all situations in any modern CPU (and 866Mhz isn't slow IMHO!), so the operating system divides up ('schedules') the available CPU power amongst the processes using it. The problematic processes are the ones that access devices that operate much more slowly than the CPU itself (accessing a disk is the main one), as these processes 'block', doing nothing until the IO is complete. Blocking IO happens when you print - the process doing the printing is having to either write data to a buffer on disk or push it down a wire to the printer.
On some operating systems - e.g. Linux - the scheduler swaps these processes out for ones that can do useful work and you never notice blocking IO unless the system is heavily loaded. On my desktop machine - P4 1.6, 1Gig memory, XP Pro - writing to a floppy disk still causes the machine to stutter, so my guess is that the windows scheduler still has problems with blocking IO - so the answer to the original question is NO, not perfectly.
However...
</technical bit>
I'd try two things (along with Mac's suggestions). First, how much memory do you have? If printing is using up all of your memory, then the slowdown isn't the operating system's fault. As 'real' memory runs out it will use the hard disk as extra - but very slow - 'virtual' memory, so your machine will grind to a halt as it swaps pages in and out of physical memory. Secondly, update the printer driver. The OS scheduler requires some cooperation from processes running on it, and it's possible that the printer driver is grabbing the CPU despite the scheduler's best efforts to get rid of it.
HTH
