Games have been using lag Compensation since Half-Life got it's netcode updated back at 1999... or around that year. I can't remember exactly when. There are many methods in lag compenation. Modern Warfar uses the Rewind Time method. Here's a wiki link that explain more about lag and lag compensation. You don't need to read the whole thing to understand, just the part that talks about Rewind Time. It even has a video link that explains more.

http://en.wikipedia.org/wiki/Lag_%28online_gaming%29

The reason why I'm showing this is that there are some posters here that don't understand the problem in full. Some people say that Lag Comprensation should be completely remove, but that would make things just as bad, having to lead your shots ahead of the direction of movement of your target. It's just that the Rewind Time method is poorly emplemented in this game. It works fine when ping time is low, but if it gets too high, you get that affect where you sware you filled your target with so much lead that he should be a pencil, yet he still killed you, yet on the kill cam, it shows you squeesing out like 2 or three shots. Rewind Time needs to be handled better on players that are lagging. The Source Engine on Team Fortress and Counter-Strike does a better job applying the Rewind Time method. I'm not saying that Valve, the company that created the Source Engine for these games, invented Lag Compensation and Rewind Time, but they where the first ones to use that method.

Basicly, the netcoding needs to be optimized. Rewind Time needs to be handled better and should be tone down or turned off on players with ping that is too high.

I hope this makes things more clear about Lag Compensation and how it works... or supposed to work properly.