It has been surmised that one source of DPS lag may be due to network bandwidth limiting (a cap on transmission rate to client) here.
Eladrin has also said that one possible cause is weapon damage effects (i.e. "flaming" "icy burst" "of pure good" etc.) here.
Thus from this, a hypothesis can be formed that weapon effects increase the network usage. If a cap on data transmission per client exists, then it's possible that, in a large group, where everyone has weapons with effects, then the network transmission cap is reached trying to send the results of everyone's weapons + weapon effects, essentially throttling the amount of data that the client receives about the current situation. Since the client no longer has an up-to-date picture of what's happening, DPS lag effects start occurring, such as seeing everyone else just standing still, not seeing accurate values for party members' HP, and not seeing correct values of monster HP (which most noticeably occurs when the game gives the "quest success" message yet the monster is still shown as being alive, such as here).
Why a cap on the transmission rate to the client may cause DPS lag can be fairly easily described. For example, take the case of the monster still sticking around and being shown as having HP even though the client already received the "objective completed" message. The server obviously has already calculated that the monster has taken enough damage to die (and hence, passes out the "objective completed" message to everyone). Presumably it has a set of priorities in terms of which types of messages to send first, and changing the quest objective is presumably high on that list. It then continues sending the damage data to the client, and the client continues processing the damage data (to move the HP bar down). Thus, what the client sees is that the quest is already completed, even though it hasn't received enough damage yet for the raid boss to die.
Of course, other reasons may explain this, such as the client not keeping up with processing the incoming data stream, but usually those effects can also be determined by looking at the current frame rate of the client. And DPS lag wouldn't particularly explain other types of lag commonly encountered, such as the lag that occurs at the end of each part of Shroud (which I would guess may also occur because the server and/or the client may be trying to pre-load the next part for example). However, if weapon effects do increase network usage, and there is a cap on the transmission rate per client, then it is one possible avenue to explore to decrease DPS lag.
To test whether or not weapon effects increase network usage, I used two different weapons:
1) Sword of Shadows: Unfortunately not epic yet, but it doesn't have any magical effects on it:
2) Lightning 2 GS falchion: In addition to the regular damage, it also has a holy 2d6, a shocking burst 1d6, a force damage 1, a shocking burst 1d10 and shocking blast 1d10 on crits, and an additional 4d6 on a natural roll of 20:
Note that the total amounts of damage for both weapons are similar.
I then went out to our favorite test combat dummies, the scrags out in Ataraxia. I then turned auto-attack on and whacked away. This was done on the live servers (Orien), not Lamannia. The video can be seen here:
I started with the sword of shadows for about two minutes (until around 2:21), then used the lightning 2 falchion for about 2 minutes (until around 4:16). Then, I went back to the sword of shadows for another two minutes (until around 6:14), and then to the lightning 2 falchion again for about 2 minutes (until around 8:19). Then I idled for around a minute (to the end of the video). During this time I (mostly) kept the mouse cursor over the packet rate button in the upper left corner, to see the data transmission rate. The reason why I went back and forth between the two weapons is to decrease the chance of other variables, such as maybe increased server load due to other players coincidentally at around when I was switching weapons.
Although I haven't gone and tabulated the results (the results can be tabulated fairly easily since the transmission rate information is updated every 2 seconds, but is time-consuming), from the video, it's fairly clear that while using the sword of shadows, the receive rate is around 3500-4000 Bps. Once I switched to the lightning 2 falchion however, the receive rate jumps up to around 5500-6000 Bps. When I switched back to the sword of shadows, the rate goes back down to 3500-4000 Bps, then when I switched to the lightning 2 falchion, the rate goes back up to around 5500-6000 Bps. When idling at the end of the video, the transmission rate was roughly 600 Bps.
This means that (at least in this test), the data transmission increased by roughly 50% when I switched to a weapon loaded up with weapon effects, compared with a weapon that didn't have any. Thus, having weapon effects does increase network usage.
As for whether or not a cap on server transmission rate per client exists, I haven't run raids yet the past few days (this week is ostensibly finals week, after all) but it would be something to look for for those guys that are testing DPS lag on Lamannia. In particular, if you see the transmission rate hover near some number (for example, 30000 Bps) for the duration of when everyone is standing still while beating down on a raid boss, then see it come down right when the monster dies according to the focus orb (as opposed to when you receive the "objective completed" message which would be several seconds earlier) then it may be an indication that DPS lag is actually tied to network transmission rate. You may want to consider doing an "all weapon effects" run where everyone loads up on weapon effects (including stuff like the force ritual), to maximize the time between when the quest objective is completed and when the raid boss actually dies, to see if the network usage does affect DPS lag (i.e. if the network usage goes down when the monster finally disappears, indicating that the client has finally received enough damage data to decrease the monster's HP to 0, then this indicates that the bottleneck in giving the client an up-to-date status of the system is due to the transmission rate).
So if this is the case, then the solution to DPS lag should be to improve how the servers handle data transmission to the client. For example, putting more information into each packet (such as putting all the weapon effects data onto the same packet rather than having a separate packet for each weapon effect) would decrease the number of packets that need to be sent, and thus increase transmission efficiency. Obviously, increasing the transmission rate cap (if it exists) would also work, although there may be capacity issues to this. Even though other optimizations, such as changing how combat calculations are handled (and thus reducing server CPU load per client, increasing the client capacity of each server) is nice, ultimately the root reason for lag should be investigated methodically and corrected to make playing DDO a more polished, enjoyable experience.
Edit: It does seem like there is a cap on the rate that the server will transmit information to you. The limit seems to be around 20 kBps. I post about it here.