Actually... playing games with your XBox purchased games that isn't from the marketplace chances of lag going LIVE is there. You should be okay playing with players from here, Singapore, Australia, Japan, China areas...

But if you purchased games from Marketplace XBox Live Arcade games, playing across the ocean isn't a problem at all... the lag isn't that bad. Tried a few games like UNO, Texas Hold' Em is lag free. Not sure about others though...