Maybe Windows Update stuck you with a less-than-optimal driver in the interim (try updating, though note that you may need to uninstall your current driver first)? Or perhaps you're running at a lower CPU speed than before? You've accounted for game settings, so it's hard to imagine what else could have happened. Oh, did you happen to install Win8 but not update to the beta driver found on this forum? If so, you're running without OpenGL, and some games really hate that.
It's integrated video, so it's not VRAM per se, just standard system memory allocated for video use per the "IGD DVMT Memory" setting in the BIOS, which defaults to "Maximum" normally. A figure like 1259MB (roughly 1.2GB) is exactly the sort of number you should see (on an 8GB system, the Intel Graphics applet found in Control Panel shows 1696MB Max Graphics Memory here). Unless you also happen to have a discrete video card (in which case, by all means, use it), I don't think you should have ever seen exactly 1GB. In any case, 1.2GB > 1GB, so I think your problem lies elsewhere.