So this is being reported by a lot of users on other forums. Basically, in single player people are getting extremely good FPS. However, in multiplayer, things change. All of a sudden we receive drops of FPS and general instability. This is happening in all 1.7.x versions and ONLY in multiplayer. Playing on servers on 1.6.x causes no FPS drops what so ever.

Threads in which others reported issues: http://www.minecraftforum.net/topic/2062038-minecraft-lag-13w41a-to-172/

http://www.minecraftforum.net/topic/2202025-area-specific-dead-zones-huge-fps-drop-174/

http://www.reddit.com/r/Minecraft/comments/21fzco/14w11b_dropping_my_fps_dramatically_and_giving_me/

Some quotes from threads:

"And I noticed, that this problem started from 1.7(.2) onwards. So I really don't know what they did there."

"My CPU usage is pretty much maxed out, and in the task manager Java is using way more than it ever has before. I've tried reducing everything... updating java, and my GPU drivers, etc. etc..... Nada. But 1.6.4 runs as smooth as ever."

"I'm stumped too. I used to get a steady 120 fps, and now with the update, I'm down to wildly fluctuating 40-60. Things aren't loading, or loading so slowly it's painful. All the beautiful scenic vistas I used to have from my houses are just fog now, because they don't draw in even on max. Or they're big, ugly, empty chunks."

Steps to Reproduce:
1. Start Minecraft
2. Use any settings. You can use the highest possible or the lowest, you will still get massive FPS drops.
3. Play on any multiplayer server for ~10 minutes.
4. Enjoy massive lag spikes lasting 15 seconds every 8-10 minutes.

This has been tested on 15 servers, 14 had massive drops, 1 didn't have AS bad of drops, but they were still pretty terrible.