Alright guys - This is my second post on the subject, but it seems that so many people didn't understand my post so I'll dumb things down for you guys.
Those situations where you shoot an entire clip into someone and the person kills you:
This is lag on your end. If you watch the killcam (which is the host's perspective), you will often see that you didn't shoot any bullets. This means that the player who killed you has a better connection to the host than you do. In the forums, I see this often mistaken for "lag compensation" and some believe that a slower connection is being somehow rewarded. This is not the case; it doesn't matter how good your download connection is - you will always be bottlenecked by the host's upload speed. If you see youself not shooting a single shot in the killcam, you're lagging worse than the person who killed you.
Those situations where you are being shot and die immediately after turning a corner:
This is lag compensation at work. Because of different internet speeds and latencies, different players will have differing views on where other players are on the screen. So while a lagging player may see a player as not having turned a corner, the player may have already turned the corner in his own screen. Without lag compensation, the lagging player would not be able to hit the turning player because on the host's screen he is not there. But with lag compensation, the lagging player can register hits even with lag.
Imagine if two players are rotating in a circle shooting at each other:
If one player is lagging badly and the other isn't, the lagging player will look like he is skipping on the other player's screen. (For convenience, let's call the laggy player 1 and the non-laggy 2.) For 1, 2 will look fairly smooth. When 2 shoots at 1, shots will register right away. When 1 shoots 2, he will actually be shooting behind 2 on the host's screen (read paragraph above) and shots will register when lag compensation kicks in. Because lag compensation takes time to register and compensation information needs to be transferred between server and user, if 1 and 2 were to begin shooting at each other at the same time, 2 would always win.
Lag is the issue with this game, not lag compensation. Yes - this game has lag compensation, but without it, it would be unplayable (especially since the average upload speed in the US hovers around 0.7 mbps). There is the issue of lag compensation hurting better connected players when they are being pursued, but it's not that big of an issue in my opinion.
EDIT... for those who don't want to read the entire thread:
Yeah my post was for instances where two non-host players were facing off. I don't know for sure what affects the host's performace. My guess would be that it is because of a lack of processing power to run the game, xmb, theater, et. al at the same time.
One of the reasons for the first dedicated servers on PC's was lack of processing power in computers in the 90's. PC's didn't have the memory or processor speeds to both host a game as a server and play the game at the same time. Therefore servers were established for the sole purpose of hosting games.
Remember - This is just my prediction for why being a host hinders performance. The original post is based off of both my personal experiences as well as conversations that I have had with game developers for situations when two non-host players are facing off (I'm a math major and we get a lot of engineering and software design people, as well as game designers, who come to our department's job fairs).