Hanger seems straight by eye. No tool to tell for sure. For sure the chain and cassette are original from 99. Strange thing is that when I measure the chain, with the zero mark on the center of a pin, the closest pin to the 12" mark is at 12 1/32 to center. Am I measuring this correctly? Seems odd to me that there would be that little to no stretch after all this time. I never did beat on the bike and never had anything major happen with it until this shifting problem. This doesn't seem very major, just something I must be missing or overlooking. I did notice that the barrels for the RD are tight on both sides. Tight to shifter body and tight to RD body, not sure if that is going to matter.

Here is a link to a high res pic I took from the rear of the bike, but it's upside down because I dont have a work stand.
http://www.ericksaint.com/images/biking/hanger.jpg

I'll try to setup a camera on the back and shift through the gears and grab some video. Not sure if the symptoms will be the same will no load.

Thanks a bunch for all the help so far, I really appreciate it. It's one of the reasons I had donated I think before I ever made a post here.