Like the other folks who answered, I don't see any obvious reason why there would be a connection between frame rate and latency. But it wouldn't surprise me if there is one, because there are stacks and stacks of software crammed into our machines and it's capable of interacting in odd ways and doing unexpected things. I'm inclined to think that you've observed things accurately.

If I were you, I'd do two things. (1) Call Blizzard and ask them about it. Their tech support people may know about this problem. (2) Use PerfMon (the performance monitoring tool that's built into Windows) to try to see how resource allocation and processes are changing when things run slow. Maybe something obvious will catch your eye immediately, like some other process getting so much CPU time at a higher priority that WoW gets squeezed out. I doubt it will be that simple but if you look hard enough you may see the direct cause.

Also -- I don't play WoW, so somebody correct me if I'm wrong -- but doesn't WoW save some sort of error log? Have you looked at it? Maybe it's going nuts trying to find a different network connection, or something like that.