No one is arguing that lag hiding doesn't come with drawbacks - you're absolutely right in pointing those ones out. On the other hand, playing online while lag-hiding is just as frustrating as the player with lag will be warping from one spot to the other, while making it practically impossible to kill him. While you're wondering where he's warped to now, you'll already be dead.
Actually. This only holds if you have P2P netcode. Serverside netcode = lag only sucks for the lagger, not for the others. note: serverside does not imply dedicated server.
If the netcode is serverside (one player is hosting, everybody connects to this player, or a dedicated server) , other players lag does not impact you in anyway, because the rules of the game are set by the host.
This means that the host determines what happends, based on at what time the information reaches the host.
Ex: lets say i have 1 ms ping to the host, host is not bottlenecked by upload\download limits (he has sufficient speeds).
If i shot, that shot will take 1 ms to register with the host. Now if you have 1000ms ping, that shot will take 1 sec to register with the host. This only sucks for the laggy player (1 sec ping).
Its irrelevant for me. Why?
Because the server sends the information to the other players, regarding what is happening where players are etc. This in term determines what you see on your screen.
So.
If i see you and shot you, my shot will take 1 ms to register with the server, and you will be dead in the eyes of the server after 1 ms. Now, even if you have already shot me or if you have moved to another location, this is irrelevant because unless your updated information regarding movement\action reaches the server before me, server has already determined that you are dead.
Also, you the laggy player will recieve information regarding where other players are on a big delay. In turn, you will shoot at players based on not updated information, this is irrelevant for the other players, because the server determines what is "reality" in the game world. You can shoot at me, but im not there anymore in the eyes of the server, however the server and the players who dont have lag to the server, will know where you and what your doing at all times (in the eyes of the server, and the eyes of the server = the reality of the online game).
Only with serverside netcodes that try to hide lag will this ever be a problem.
If you play PC games online you will notice this. Players with bad lag will be very easy targets because they will be shooting at stuff that isn't there anymore (delayed information), whereas me with 20ms ping will shoot you based on where you are 20 ms ago.
Same reason why hosts allways have advantage in serverside based netcodes as what they see is the gaming reality, but what you see is the gaming reality X ms ago.