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Latency will always exist. It can be improved upon marginally by reducing the overhead when the signal passes through servers (before traffic leaves the country, it passes through roughly 10 servers, which take time to process information and send it), but unless we find a way of sending information faster than the speed of light, latency is here to stay.
However with better network coding, Halo 3 could reduce the host advantage. One of the major problems with Halo 2 is when you shoot someone, it sends "I shot this guy in the head" to the host, who then checks if that was possible based on where the player who was shot was at the time and returns either "Yes, the player was there. Here's a kill", or "No, the player wasn't actually there on my screen. No kill".
If the host were to accept the client's side of things (i.e. if a client shot someone in the head, it accepted that without doing checks to see if it was impossible from the host's perspective) host advantage would be much less of a factor.
So in our above example "I shot that guy in the head" would translate to "Ok, you shot him in the head. Here's a kill" automatically. Which is obviously much fairer.
The main problem is the poor decision to check if something could have happened on the host's xbox and reject hits, even if it happened on the client's xbox.
[Edited on 5/18/2006]