Both of my friends tried hosting a server, all of us hosting with 2 megabits/s up speed.
Here's a video to explain everything.

http://youtu.be/_hy12LhhUks - First video of 1.8
http://youtu.be/87tJJsjMvEU - Second video of 1.8

You could see him jittering and falling behind when I punch him in 2nd video. Block lag was at the start, and chunk loading is icky.

We later decided to jump into 1.7.10 to test out if the lag persists.
Here's another video. (Sorry about the weird static, I broke it when trying to stitch the videos together.)
http://youtu.be/goPoqrNeDDg

If you're not a fan of 4 minute videos, basically, 1.7.10 doesn't have any of the problems that SMP 1.8-pre1/2 have.

Sorry if this is a duplicate, I tried searching for block lag and entity lag in SMP but to no avail.

(At the time of this post, those videos might not have aired yet)

How to recreate:
Set up a server with 1.8 prereleases, load up a normal world, join with two or three of your friends and attempt loading new chunks or entering the nether, or simply even just trying to do normal survival. Lag should start happening.