As regards the Bottom half – this displays information as regards data packets received (Well, hopefully anyway). Green bars indicate data packets being received. Red bars indicate lost data packets, while Yellow indicates corrupt data packets being received (The net effect of red & yellow is the same however). Similar to the Top section, if you are receiving a good deal of red & yellow it would be a good idea to change Server. Information here should be used to adjust the rate “x” option, described later.
It appears your problem is excessive packet loss (probably from an unreliable connection, could be line problems, low-quality modem, etc.). This is different from the time it takes for a packet to be sent (ping), or how quickly your computer can redraw the screen (FPS), so changing your video settings won't help. Packets of information from the server simply aren't reaching you reliably.
Also from the same article:
rate “x”. x determines the maximum number of bytes that the game server can send to the client per second. The default value for 56k connections is 4000. Similar to the snaps “x” option, the greater your download bandwidth the more you should be able to increase this value. Cable/DSL users should be able to set this to 10000 or perhaps more without issue, though should you find latency increasing or a good deal of Red & Yellow bars in the Bottom half of the lagometer then lowering this value by several hundred should help resolve it.
Best solution: broadband. Since you say that isn't possible for another year, you have to decide if you want to invest in a better modem (do you have a Winmodem that saps CPU cycles, or a hardware modem. Getting an external modem http://www.essencompu.com/nupplysingar.asp?ID=1812
guarantees it's not a Winmodem) although there is no guarantee that will fix it. You can try adjusting your rate as mentioned above, either up or down (/set rate 3900, /set rate 4100, etc.). Maybe your phone company can test for excessive noise in your line.
Hope that helps