Question: Are you running all the WoW instances out of the same directory, or different ones?

If you aren't already, try running it all out of a single directory. I had a very similar problem running 5 instances in 2G (with zoning on zeps), and running it all out of the same directory made it (and the city lag) MUCH better. I'm guessing the hard drive cache is the reason, but whatever it is, it was night and day for me.