Two pythagoras statements are slowing your game down? At 25fps? Something is wrong -- that should not be the case.
Remove the collision detection completely and check that you get your 25fps back, then add statements a line at a time until the slowdown reappears.
Check you are not calling your collision code more than once (well, twice) per frame.
Remember that you can test for collision without using Math.sqrt:
function circlesTouching(circle1:Point, circle1Radius:Number, circle2:Point, circle2Radius:Number):Boolean { var dx:Number = circle1.x - circle2.x; var dy:Number = circle1.y - circle2.y; var minDist:Number = circle1Radius + circle2Radius; return (dx*dx) + (dy*dy) < (minDist * minDist); }
(You will still need sqrt to resolve the collision but this should be pretty rare.)
However in my experience, even though Math.sqrt is the slowest part of Pythagoras, it's still easily fast enough to manage two calls per frame at 25fps. It sounds like something else is wrong.