Totally normal. The more connected players there are on a same server, the more he’ll struggle, with identical broadband and hardware configuration. If both are the same, you should have the conditions with the number of players connected. Pretty hard to keep a 8vs8 server with 14 players, but that’s how you should compare the situation.
UE3 is quite sensitive to numbers of players, and the overall server quality decrease significantly the more players there are on the server, exponentially pretty much. Not only it has more clients to deal with, but some pointless elements are also taken into account such as ragdolls… And it clearly does not help.
So yeah, there really is a sound barrier for UE3 servers.