Lag actually is what stopped me playing alot of PC FPS's. I must say though, I reckon the PS3 has less lag than on the PC, also I think another big difference is the hardware. I don't have super-high spec computer hardware, when someone tosses a smoke grenade it's slows my computer to a crawl, I could take down the detail, but then I couldn't see guys in the distance who kept sniping me.
But I agree with Beerz, dedicated servers would be much better. Even if a player can set himself as a dedicated server.
Clingling_Jam and I just had a few more games, I did much better than yesterday. I've started to use the AK-47 with the grenade launcher, stopping power and steady aim. It's a pretty deadly combo I think, especially in close combat, I might try replacing stopping power with UAV jammer and see how that goes.