I am playing Saints Row the Third with my friend co-op on PC, using the LAN feature.

When playing and say if my friend is driving, there is extreme rubber banding (where the car/objects rubber band [network lag]). Walking around isn't that noticeable, but it is during driving. Both PCs are connected to the router via an ethernet.

We are both on the same network under 1 router. How can we fix this?

There is no firewall running on either PC. My connection is fine, I can get ~2Mbps download on Steam. Or I can copy files over the LAN at Megs a second as well.

I put in a support ticket with the developers, but they're just telling me to update my video card drivers...

This does not happen in any other games played over LAN. Pinging the two PCs results in 0% loss and <1ms response time.