I'm not much of a Quake fan and I prefer UT2004 anyway. Plus, I agree, PC's are preferrable for FPSes, although I do okay with the Halo games on the Xbox.
Yeah, I've got the DC + VGA hooked up to a HDTV. That's the reason I invested in the VGA cable and converter box - just couldn't stand S-Video on the thing! No lag so far, my Sharp Aquos seems to handle 480p well - not surpising when it's game mode eliminates lag in 480i as well.
And to answer your last question, a quick search of Google shows that NesterDC is VGA compatible, starting with version 5.0.