OK, went back and loaded some upgraded software. Now using 12.4.1 Advanced security IOS on the 3845, and SDM 211. The new 256MB.sdf signature file has all the IM and P2P signatures in it already!
After applying the IPS inbound on the serial interface, I changed the UDP signatures action to drop and the TCP to drop/reset.
Everything appears to be working beautifully. Yahoo and MSN messenger get dropped, as well as the peer to peer requests. I am unable to download Bittorrent. Web access is fast, and there is no hesitation by the router in configuring the IPS.
This appears to be a great solution so far.