Your serverstart.bat looks good, and 2GB should be plenty of RAM for a small server. Can you be more specific than lag? Your problem could be low frame rate spikes on your client (screen freezes), low tick rate spikes on your server (commonly known as block lag, blocks can reappear or take a long time to drop as items when you break them) or you could have network bandwidth lag (the map is slow to load after joining the server or teleporting around, server doesn't respond until map is finished loading). Which of these sounds the most like your problem? If this is not related to tick rate lag spikes on a 1.6 DW20 server, then you may be best to start your own forum thread.