The OP makes a good point, but its not all doom and gloom and wouldn't take millions to fix. What could be done is a hybridization of the two systems. The server will check your movements over a larger area and let the client select where it is on a smaller scale. This is how other MMOs actually do it. If you ever played WoW, you'll notice that some people who are lagging are teleporting a bit in a predictable pattern or chunks. They kinda stay sill then move and repeat.

Althea's suggestion on pg 10 is also a simple way to fix the issue. Let the clients tell the server they exited or re-entered the AOE. Yes it will make it easier to hack to be immune to AOE, but the impact is alot less than the overworld mining teleports already in effect.