People would still be able to play the mod. Its not like its completely lost... Or is it? Also about the lag. How much less lag can this possibly create? Is it as drastic as a person that gets 2 seconds of delay and a lot of stutters to have .5 seconds of delay and nearly no stutters?
The mod is completely lost.
The thing of that lag compensation is that the feeling of lag seemingly dissappears (you don't have to lead your targets), that combined with prediction and interpolating (removing stutters) mean stutterless and seemingly lagless gameplay. Most importantly, you don't have to predict your jump when jumping off a platform.
The only disadvantage that we get (we can't make latency disappear after all) is that the "shot around the corner bug" occurs. Despite shots being seemingly missed on your screen they still hit for the shooting players, and get registered as such. This will be most noticable when hiding behind boxes. Luckily, most shots in GG2 are projectiles, so we can sync them to hide the lag even more. But it would certainly be noticed for hitscans (sniper).
What for example can happen is that a rocketman shoots a rocket towards a Pyro. The Pyro player sees the rocket on his screen and reflects the rocket. But in the time it takes for the reflect to get to the server the rocket already hit! (which is also what the rocketman will see), but then the event of the reflect gets to the server, and the server goes back in time to see if the reflect was successful. It was, so history gets recalculated, and the rocket will be reflected. This might create a bit of a "WTF" for the rocketmen, because the rocket seemingly hit but then got reflected. Though weird it is fair.
All of the above described effects are about bullets and shooting.
It is very well possible that we might not do lag compensation for shooting, and only for movement. On top of that, dedicated server will greatly reduce latency. It is very well possible for your latency to drop from 230ms to 40ms. Here's a little quick test for you.
Open command prompt and type "ping nclabs.org", without the quotes. It will display how much milliseconds ping you have with my dedicated server (nclabs.org). If I'd host a PyGG2 game on that server, that will be ~ the ping you'll get.