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The most lag I see is when there are loads of players in one spot. No matter your connection, the lag is the same (for me at least). As you said, a better computer/server would be able to handle the large flow of information.
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That's not lag! Jesus, it's based on your CPU driver ~ on iPad 1 I get buggy as hell and crash at start. On iPad 2 it's kinda fine and on iPad 3 it's the same as all levels.
The server usage starts to create lag when it's up to 99% which is not going to happen unless some giant bug does that.