Having performance problems.

First let me start by saying I am pretty new to Postgresql. To date I have only worked with small databases, I now have a database that isn't big but is big enough to create performance issues. The database is roughly 450 MB. I have two tables of interest; logs and hosts. At one point I had the following sql:

SELECT * FROM hosts, logs where (logs.host_id = hosts.host_id) ORDER BY date DESC, time DESC;

This took over 1000 seconds to execute.

I then upgraded to PGSQL 8.0.1 and created tablespace logs_t and hosts_t, these are on separate controllers and separate disks.
List of tablespaces
Name | Owner | Location
------------+----------+-----------------
hosts_t | postgres | /pgdata/hosts_t
logs_t | postgres | /pgdata/logs_t

I then altered the tables logs and hosts to use the new tablespace respectively and I changed the sql to read:

SELECT hostname,facility,priority,level,tag,date,time,program,msg,seq FROM hosts, logs where (logs.host_id = hosts.host_id) ORDER BY date DESC, time DESC;

Under 7.x my PGDATA was on /pgdata; however, for 8.x I have left it in in its default location of /var/lib/pgsql. So what is happening now is:
1. I am still seeing all 4x700 MHz CPUs go to 95%+ IOWAIT, appears that /var is the hardest hit.
2. SELECT hostname,facility,priority,level,tag,date,time,program,msg,seq FROM hosts, logs where (logs.host_id = hosts.host_id); works but takes awhile; however, adding the ORDER BY condition causes the SQL to execute to the point that /var becomes full and the SQL exits with:
ERROR: could not write block 81940 of temporary file: No space left on device
HINT: Perhaps out of disk space?

What parameters can I start "tweaking" and what can I do to addres the issue of /var filling up? Below are some of my kernel and database settings:

effective_cache_size | 1000
maintenance_work_mem | 16384
max_connections | 32
shared_buffers | 64
------ Shared Memory Segments --------
key shmid owner perms bytes nattch status
0x0052e2c1 38043648 postgres 600 1540096 2