It's gotta be the netcode. Try doing the same tests offline with tons of AI and you'll find it's not nearly as bad. In theory, the server should be doing the majority of the work as far as cpu computations and the like when running a server - (if it's like other MP games) while the clients need the GFX to be able to draw them all out. Basically in the same situation, offline should be harder on your system than online - which in a lot of circumstances with this sim it is. But you get a bunch of player flown planes close together and it goes to pot. Gotta be the netcode. One day I hope it actually gets looked at.
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