Simple queries take forever to run

I'm running into some performance problems trying to execute simple queries.

postgresql version 7.3.3
.conf params changed from defaults.
shared_buffers = 64000
sort_mem = 64000
fsync = false
effective_cache_size = 400000

ex. query: select * from x where id in (select id from y);

There's an index on each table for id. SQL Server takes <1s to return,
postgresql doesn't return at all, neither does explain analyze.
x has 1200673 rows
y has 1282 rows

It seems like its ignoring the index and not using enough memory.. any
ideas?