Maybe I am not understanding what you are saying. I see no jumpiness or lag on my server at all. Your server may be having another issue. Have you tried playing on other servers? Also, could you describe the jumpiness? It sounds like you might have a z-axis issue or something from what you guys are describing.
As for the code to do position updates, yes it is old, but it is also much bulkier than it should be. If anything, position updates need to be tuned down (less often) in some situations. I have looked into optimizing position updates, but I haven't had time lately to really work on it at all. It would probably take someone above my code level to really optimize them properly.
I know that one of the revision of code releases included something that basically broke spawn updates, so if you guys are running that revision, you need to update your revision to stop it from happening. I don't recall exactly what release it was, but it was a little before revision 150.
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