Here's what I did. It solved my lag issues.
I'm still having problems with Bluetooth being unreliable tho.
a) Backup all apps, contacts, sms, mms, pics, etc to your SD card using a good backup manager. I recommend MyBackup Pro from the market.
b) Remove your SD card just in case.
c)Factory reset the phone using the following steps...
Resetting the phone deletes all data, including downloaded applications, and resets the phone back to its initial state. Press HOME > MENU, then tap Settings > Security > Factory data reset. On the Factory data reset screen, tap Reset phone and then tap Erase everything. To reset the phone using phone buttons, with the phone turned off, press and hold the HOME, END CALL/POWER, and BACK buttons. The reset process will start after a few seconds
d) After the reset connect your phone to your PC and install 2.1.
e) Insert your SD card
f) Re-download your Backup Manager and restore all data
g) Download an app manager so you can kill any apps you don't need running to conserve the battery