Really? That's odd... maybe the mouse sensitivity being too high is combining with lag, though if you're in -sv -cl mode getting jaggy movement there shouldn't be any lag for yourself?

On my own machine I've run a server and 3 clients in windowed mode and had little performance degradation, though my more recent tests have been on university computers in the cluster that are already conveniently LAN'ed together and have their IP address on a sticky on the monitor.

Perhaps I should look for a less powerful machine to test performance effects?

I'm gonna go eat lunch and then work on the game some more, aiming to get to the place where I can focus on content.