I made up two random images (I don't think it would matter what they look like, unless they're massive), and didn't notice any lag at all. Unrelated, but is there a reason you're using pygame.display.update() instead of pygame.display.flip()?
Scaling the images could be a major time sink. I'd try either a) lower resolution images, and b) a different format such as jpg.
I ran it through the profiler, and got the following output:
Output:
D:\Projects\playground>python -m cProfile -s tottime eggs.py
302653 function calls (296917 primitive calls) in 5.433 seconds
Ordered by: internal time
ncalls tottime percall cumtime percall filename:lineno(function)
270 1.506 0.006 1.506 0.006 {method 'tick' of 'Clock' objects}
540 1.312 0.002 1.312 0.002 {built-in method pygame.transform.scale}
540 1.093 0.002 1.093 0.002 {method 'blit' of 'pygame.Surface' objects}
270 0.330 0.001 0.330 0.001 {built-in method pygame.display.update}
1 0.238 0.238 0.238 0.238 {built-in method pygame.base.quit}
1 0.224 0.224 0.224 0.224 {built-in method pygame.base.init}
270 0.175 0.001 0.175 0.001 {method 'fill' of 'pygame.Surface' objects}
1 0.107 0.107 4.785 4.785 eggs.py:28(Game_Loop)
1275 0.052 0.000 0.052 0.000 {built-in method nt.stat}
46/44 0.034 0.001 0.038 0.001 {built-in method _imp.create_dynamic}
176 0.022 0.000 0.022 0.000 {built-in method marshal.loads}
1 0.017 0.017 0.254 0.254 {built-in method pygame.display.set_mode}
271 0.016 0.000 0.016 0.000 {built-in method pygame.event.get}
590/584 0.011 0.000 0.049 0.000 {built-in method builtins.__build_class__}
472 0.011 0.000 0.011 0.000 {built-in method winreg.OpenKey}
190 0.010 0.000 0.010 0.000 {built-in method nt.listdir}
487/92 0.010 0.000 0.029 0.000 sre_parse.py:469(_parse)
176 0.009 0.000 0.015 0.000 <frozen importlib._bootstrap_external>:830(get_data)
2188 0.007 0.000 0.018 0.000 version.py:131(_legacy_cmpkey)
924/88 0.007 0.000 0.032 0.000 sre_compile.py:64(_compile)
176 0.006 0.000 0.006 0.000 {method 'read' of '_io.FileIO' objects}
335 0.006 0.000 0.008 0.000 sre_compile.py:250(_optimize_charset)
540 0.006 0.000 2.411 0.004 eggs.py:42(Display_Objects)
13441 0.006 0.000 0.006 0.000 sre_parse.py:232(__next)
191/1 0.006 0.000 5.433 5.433 {built-in method builtins.exec}
3676 0.005 0.000 0.015 0.000 enum.py:797(__and__)
494 0.005 0.000 0.056 0.000 <frozen importlib._bootstrap_external>:1233(find_spec)
7230 0.005 0.000 0.010 0.000 version.py:114(_parse_version_parts)
7844 0.005 0.000 0.005 0.000 enum.py:515(__new__)
2506 0.005 0.000 0.013 0.000 version.py:198(__init__)
2 0.004 0.002 0.004 0.002 {built-in method pygame.imageext.load_extended}