Take a look at this thread for suggested settings: viewtopic.php?f=1&t=21856
Lag can be due to a couple of things. It's likely 512 is too little for max mem because it has to access the hard drive more often. Also, pc tokens with many macros (30+?) can cause lag which is partially due to the Select window being open. Also, if you were moving tokens around in FOW while NOT running a server then that can add a bunch of un-needed data on to a token. That can be resolved by the GM using ctrl-shift-O clearing up the tokens. Finally, when using vision and FOW if you have many VBL lines that could cause some lag, but I can't really describe what "many" is... Oh, and if your campaign has the default vision distance of 1000, that's probably too much. I changed mine to 240 which seems more reasonable for DnD.
Try those and see if it makes a difference. Oh, if you have a player with only 1 meg of ram, the max mem 768 usually works, but 512 is safer.