It's an issue because you don't try to shoot the other car! Let me explain:
In the racing sims I tried online, they extrapolate the positions of the other cars. So if you take the two pictures above in mind, the first picture is the locations recieved from the other player, but along with the latency (X). Your computer "knows" this is dated data, so it makes an assumption about where the other guy would be at T+x and draws this on your screen. (further ahead)
Same for the other guy. His computer "secretly" sees you much farther back (2nd pic), but again extrapolates your position on his screen and draws you where you will be in x millisecs, (closer)
So simple. Two cars going side by side. If both players sat next to each other and could see what the other guy see it would seem like there were no lag at all!
Now, why doesn't AH use this method you ask (or "why is this an issue?"). The reason is warping. As long as you go straight this method works great, once you start turning, especially at high speed, the extrapolations are suddenly off. To compensate for this your computer have to make the other player "jump" to where it's new guess is or warp.
If instead your computer draws exactly the position it receives, there is no guessing, and the only warping will be if one of the connections are unstable with very variable latency. Having small microwarps might not seem so high a price to pay, but when you try to shoot that other plane, instead of just overtaking him, it would be a real turn off.
Also, when looking at cars, it's a general rule that the faster they go, the slower they turn. Real sharp turns in racing games are often done at slow speeds, where the risk of mis-extrapolating is low. Planes on the other hand, tend to turn better the faster they go (to some extent), increasing the risk of warping.