Consider that there's a continuum of games with titles like Halo multiplayer on one end, and WoW on the other. One has to track a small number of simple entities very quickly, while the other models complex sets of numbers and probabilities but with a vastly simpler movement and targeting system.
Now consider where Neocron sits in that continuum and think about what it has to do to give a convincing impression of both ends using the limited technology and bandwidth of PCs and the wholly unreliable internet.
Does Neocron pull it off perfectly? No. But is it as simple as removing client-side damage? Absolutely not. Also think about how long Neocron's being pulling off this remarkable feat.
I'm currently working on a system that will eventually get around this issue. The client makes a connection to the server and receives a quantum-entangled session packet in return. This connection packet itself can be communicated via any classical means and once the connection is made further communication happens instantaneously regardless of distance from the server. The client and server maintain equal but opposite entangled states and all the client has to do is multiply the packet by its complex conjugate to render real numbers that can be used to calculate positions and damage, at which point you have completely lag-free gameplay.
Of course when I say "a system that will eventually get around this issue" I really mean "a piece of toast", and when I say "currently working on" I really mean "eating".
The first part is true though.