I am experiencing similar performance issues with snapping in ArcGIS 10 SP4.
I've been searching for information on how the snapping environment works as it appears to require caching of all potential snapping geometry into memory when starting an edit session, but this thread is the only information I've found talking about performance issues.
My observations are similar. The fewer layers in the map document, the better editing/snapping experience. The smaller the files, the better the snapping experience. Switching to the classic snapping environment provides no boost in performance. I didn't test snapping using files in different projections/coordinate systems, but I think the comment regarding indexing is right on.
The biggest breakthrough came when I loaded only two layers in ArcMap and tested snapping to a 150Mb parcel shapefile and ArcMap fell on it's face and was excruciatingly slow with no snapping ability. Snapping on the same parcel file loaded into file geodatabase...very fast with no problems. Snapping performance on the same parcels loaded into SDE is somewhere in between. I can open a map document with several SDE layers (including parcels), start an edit session, and although ArcMap performance does not slow down noticeably, the interactive snapping does not appear regardless of which features over which I hover! I then walk away from my computer for 15 minutes, come back, and the interactive snapping magically starts working beautifully.
Please do not point us to help documentation on how to use snapping or another blog on how to effectively use the simple, flexible, and great new snapping environment. Someone please provide better detail on what ArcMap does to enable snapping when an edit session is started please so we can find work-arounds to these snapping performance issues.
Thanks.