Most likely the speed of your internet is not the problem here, but the distance. When mention speed games usually don't use more than 5-10kb/sec download / upload when playing, when downloading skins this can increase tho, either way it's most likely your signal. When you try to race on a server, or all information about you, have to travvel a great distance before others recive it. It's not just the distance either, but it goes through a lot of "check" posts on the way, to give and recive info further on the journey. Finally, after checking through more check-stations and given more information than you would need if your name was Osama Bin laden and tried to get USA visum, then your on the server and people get the information. Sadly that distance, and those xxx numbers of check posts has taken it's time, and others will notice it. For them you will be jumping all over track, and impossible to predict where you are heading, and for them your just a hazard needing to be removed.
If you, on any way, download, upload or using much badwith of your internet line while playing, the time taken from your computer sends out the signal to when people recives it will increas DRASTICALLY. I strongly advice you not to do this, or if you are going to do, please at least limit upload on 50%, and download on 60-70%, just to make sure there is not a problem with over usage at the line.
Other things you can check, do you sit on wireless? If you do, the latency will increase much, often can it jump up normally 200MS, or 0.2 seconds on respon time just by going from airsignals instead of cable signals.
One last thing you can try, if your equiptment has been turned on for a while, that means ruter, ADSL modem, computer - restart all mentioned. Sometimes there just happens to occure bottleknecks, that is solved by a restart. Also, if your computer gets very hot, it might give you extra lag aswell.
There, that's a little info about the latency problem.
The last thing you mention is the few people online at the many servers, again that is a problem with your location. Most people that plays LFS most likely sleeps at the time you try to go online, or maybe in heavly work time or something. The only help you can get on this is to either stand long up on nights, or get more pople in your time zone to buy lisence so you can play with them.
If you ask kind maybe some of us europeen's could stay up long one night, so we could take some races
My time zone is GMT+1, but I have no idea what time zone Australia is.