PIC16F628A: 500ms delay (w/Timer 1) not as expected
There does not appear to be anything wrong with your code. Here is the delay with a 4.000MHz clock using MPSIM:



Try putting a low impedance bypass capacitor and a larger capacitor in parallel (eg. 100nF ceramic and 100uF electrolytic) directly across the power (Vss-Vdd) to the microcontroller. 

The section you quote refers to the prescaler counter, not the prescaler selection, so no big effect.