Update: On a hunch, I tried playing an online game at the same time as a friend, and as anticipated there was a little lag, but nowhere near as much as if someone had bittorrent on.

What client are you using? I use Azureus, so that's what I'm used to describing, but the issue is the same irregardless of the client.

The problem is that the BT client is using as much upload as it possibly can. ADSL lines have a problem where the download speed of the connection will slow to a crawl if the upload speed is pushed too far. What you need to do is find out how much total upload speed your connection can support and limit the BT client to less than that amount.

For example, my connection is capable of 512kbits/s (64kBytes/s). Since there is always overhead on a connection, I can't just let Azureus take 64kBytes/s upload speed. Furthermore, there are three other people that may be playing online games, surfing the web, or using BT clients of their own that share the connection. Since I'm the main user of BT (and since I control the router , I let my Azureus have a max upload of 20mBytes/s. All of the other clients are set to a max of 5mBytes/s. This means that, if all the clients are running at the same time, a total of 35mBytes/s is being used just for BT. The remaining bandwidth will still be enough to surf or play games, so the numbers work out well.

The rule of thumb that I use is to never let the cumulative BT client upload max pass 70% of the connection's total upload abilities.

I'd say that your friend's BT client should have access to no more than 30% of the max upload speed. Use this speed test to determine the performance of your line (don't rely on what the salesman told you).