I got a similar problem too:
-Everyone else freezes on the map, and can't see them on the track
-Occurs *only* on S2 registered servers, not on demo side even if full
-Even on low ping servers with a couple of ppl driving
-Seems to have happened recently for me, it was working fine for some time and with no changes to my system or connection as far as I can tell (not very far..).
-Didn't start happening after applying any particular patch
-Seems to happen at any time of the day
My ISP also has pathetic DNS servers, going down every few minutes (but LFS uses IP to connect I gather, since everyone can host..?)
It makes S2 racing on registered-side servers impossible, please could this issue be investigated or at least explained properly by someone in the know.. (dev perhaps
)?