I went to FlashBrighton last night to see Iain Lobb talk about Flash multiplayer games. Iain has built games such as ZW0K!, Stackopolis and Pop Pirates, so really I should have sued him for all the lost man/hours of staff wasting their time playing his addictive games!
A lobby should work for a casual multiuser Flash game (let people join games asap, populate with bots if nobody else available, don't put people in a game all on their own).
For use with Flash there are media servers that could be used for games: Flash Media Server (pricey) or Red5 (open source). There are also generic multiplayer game servers: SmartFoxServer (used by Club Penguin) and ElectroServer (used by WebKinz). Both the game servers have trial licences, so could be used for free to start a development and then paid for if and when the game grows.
Iain showed how movement can be smoothed by easing a sprite towards it's actual position rather than jumping to it.
Project Darkstar is a game server from Sun that will act as an MMO server. This appears to be very new (since June/July 08) and i'm quite excited about trying it out.
I see also that they will be talking at Austin GDC and other venues.