postgres slowdown question

Dear Postgres Masters:

We are using postgres 7.4 in our java application on RedHat linux. The
Java application connects to Postgres via JDBC. The application goes
through a 'discovery' phase, whereas it adds large amount of data into
postgres. Typically, we are adding about a million records in various
tables. The application also issues multiple queries to the database at
the same time. We do not delete any records during the discovery phase.
Both the java application and the postgres are installed on the same
machine.

At the beginning, the application is able to add in the order of 100
record per minute. Gradually (after several hours), it slows down to
less than 10 records per minute. At this time, postgres processes take
between 80-99% of CPU. When we reindex the database, the speed bumps up
to about 30 records per minute. Now, postgres server takes between
50-70% CPU.

We have the following in the postgresql.conf :

max_fsm_pages = 500000

fsync = false

We certainly can not live with this kind of performance. I believe
postgres should be able to handle much larger datasets but I can not
point my finger as to what are we doing wrong. Can somebody please point
me to the right direction.

With kind regards,

-- Shachindra Agarwal.