I've been using this app since October of last year. I love it, it works great. For those having lag issues, it is unfortunately a network problem most of the time. There are ways to troubleshoot this or test for it both before and after you use Groove IP.
1. Download a speed test app, I recommend Speedtest.net.
2. Run multiple speed tests, at least 5 from 3 different test server locations (Speedtest.net allows you to change the speed test server).
3. The numbers that we're looking for here are at least 100 Kbps up and down, and 80ms or less in ping. The ping is usually where you'll come up short, you ideally would want 150ms or less.
Some peoples ears can notice even that slight amount of lag, but I've noticed that every person has a limit to amount of delay that they can passively tolerate/ignore/not notice. It's usually been around 200ms for most folks that I know.
I usually hit wifi or do it when I'm at about 120ms or less in pings. Checking around online, 150ms seems to be the sweet spot for many people. You can try disabling sync, properly exiting or force closing any app that uses the web (outside of GrooveIP of course).
Sometimes I force my phone in EvDo only mode to stop the phone from dropping to a slower network. I really wish that 3G tech had better latency, I can get 18-20ms through Wifi on AT&T's slowest DSL connection. I guess that's the strength of using a more local connection that's within a close range.