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The pictures are still on your hard drive; Picasa merely catalogs them. Any time your hard drive is too full, performance takes a hit. You need at least enough to have a decent swap file AND enough room for a defragmenter to be able to shuffle stuff around. Since images are files that take up space then yes, too many pics *can* slow your system down if you have so many that you don't have much free space on your hard drive. I like to leave at least 10% free space on mine; how much that is depends on teh drive in question.
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