1.6 Leaked Patch Notes

[lemekim]

Well, it did reduce lag somewhat, because the locations of the Ironforge and Orgrimmar AH's are in areas that are more free of non-player objects than the AH locations in Stormwind and Undercity.  But, of course, when you have that many players confined to such a small area, you're going to get lag anyway.  Thank God, they disabled dueling in those areas, too.  The real way to reduce the lag would be to have linked auction houses.  I, for one, would definitely set Undercity as my home if that happened and leave Orgrimmar for good.
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Which is why I said "most" lag =)

But yes, I can see quite a few people setting their hearthstone in less populated cities just to reduce lag, if the Auction Houses were linked and thus available in any city. I myself would probably set my Hearthstone in UC as well.