Before 1.6 came we had great performance, was really like hosting a game on your own computer, however, 1.6 rolls around and we get shocking performance, utterly brutal. You break a block and then it pops back into existence, then it pops off.

A note about the servers performance, I am sure you are all aware of the "Feed the Beast" mod pack, (we used to run both a server for that and a server for Vanilla minecraft) that server holds up 100% fantastic performance and everything acting as it should. I have tested recently and the performance is still great on that server/world. Then running the normal server and we get all kinds of lag, it has to be 1.6/ 1.6 corrupting our world.

I do not know the exact CPU in the server as we rent it (not one of those control panel ones but an actual VNC to the server and desktop ect) We have 4 GB that I have dedicated to it (1 gig min, 3 gig max) to give space for the os, Really annoying thing is at most only ever uses 100mb, so to make sure I had no errors in the .sh startup script, I went to "minecraft.net" and directly copied that example, again still laggy.

The map was created around the time of 1.2 as I had started playing far before this and had decided to introduce my friends to the game, they liked it and wanted to do a server, the rest is history. I would very much like to keep this world as we have many old things that are no longer in the game (wooden slabs, unenchantable enchanted items ect...)

The server lags when I am not doing anything, the server utterly spews error messages about not being able to keep up and the next one I dont even understand, it says "reached end of stream for then my public IP but here is the strange thing, it does that when I am not even online or trying to log in... not even online, I can go out for a day, come back and have 100 errors of that, no that is on my connection is trying to log into my server.

A thing to mention is, the world isnt exactly small, I just created a new world for testing purposes and it was 2.7MB without moving at all, so my 600MB world is rather large but surely the only chunks that should matter are those that are loaded, right?

Just so you know the world that I created suffered from no such lag. Nlo cant keep up errors, no reached end of stream, nothing.

When is the lag noticeable?
1: When throwing "ender pearls"
2: When mobs are walking towards you.
3: When fighting mobs.
3.1: Can run directly through a creeper without it exploding
4: Blocks break then return, then break and drop themselves.
5: On horses, you are in one location the next, then you freeze (not fps) holding forwards, then you are in a new location.
6. Activating redstone.

One last thing to note, when the server was first created we used one of those terrible hosted servers where you just get a website control panel, instead of using the default minecraft server jar, they decided to (as default) use the bukkit version, we did not realise this until there was a new version of bukkit (as it tells you when you log in) we soon got rid of it but had some errors back in the day with chunks respawning (everything you do would go back to default) A few months ago we had like 300 sheeps just spawn in a random location, no real explanation for that, and fairly close to my base we had the server spewing out "entity at wrong location tileEntity Rail" or something along those lines, that was there for a long time but seems to have gone now.

As you can tell we have had some problems with the server before but we have never had them were you just simply could not play. I am very prepared to delete unused chunks if I have to. (but would love to keep the used ones)

When I have been noticing the lag there is only 1 person on, and that is me. We only have 3 people who play on the server anyway so it isnt like we have a 500 slot server or anything like that.

Please help and if 1.6 is corrupt I will just revert to 1.5 until it is fixed but if it is out map, I will be very sad.

Final note, (my wrong doing I suppose) we had been using some of the 1.6 snapshots that is when the "end of stream" error started. If you would like to download my map to test it on your server, I would be very happy to supply you with it.