I was curious about that compression and found an analysis[1] of the DL protocol. The first thing I saw was that it doesn't just render to a framebuffer on the PC, it renders twice, once at 16bpp and another at 8bpp (which it will combine to achieve 24bpp). The use of Huffman encoding seems consistent with the state of compression in 2003 [2]. If doing it today you'd probably go with x264 lossless but that would have been too slow 15 years ago. In conclusion I'd guess the lag is caused by the split framebuffers. Or an inefficient proprietary driver.

[1] https://pdfs.semanticscholar.org/a3ed/739f229315fe8673f227e7...

[2] https://forum.doom9.org/showthread.php?t=165545