The best way to see the horrible lag is to let someone follow you and see how far behind he is. On his screen he will be right behind you ^^
My problem with the graphical engine is not the lack of detail but the non-existent optimization for pc. LoD is to reduce the stress on the hardware and makes it possible to draw more characters and at a higher distance... I think this definately directly affects gameplay. Graphics are part of the gameplay as they create an atmosphere, which is important for RPGs. People that say otherwise should at least give some arguments...