What's the problem?
The primary causes of wireless LAN problems in high-density areas are:
1) Too many users trying to use the same channel.
2) RF (Radio Frequency) interference from nearby WLANs
The first problem is a capacity issue, i.e. not enough bandwidth to go around. Simply put, there are too many radios trying to use the same channel (i.e. frequency) at the same time in the same area. "High density" is a relative term, but if you live in an apartment building or school dorm, you're definitely in this category. And even if you live in a single-family dwelling, if the distance between your and your neighbors' homes is 50 feet or so, and you know the names (SSIDs) of your neighbors' wireless networks, you're also in this category!
An 802.11b network has a best-case useable bandwidth of about 5Mbps. This capacity can actually support a large number of users, if their transmissions are short and intermittent - as they would be for web-browsing, email, IM and the like. But with typical broadband connection speeds of 1-2Mbps, you can see that it doesn't take too many long downloads, video streams or webconferencing sessions running simultaneously to exhaust this relatively small data "pipe".
Switching to 802.11g makes the "pipe" bigger, but nowhere near the 54Mbps touted on product boxes. My testing shows that best-case real (available) bandwidth for current-generation 11g products with clients running WinXP is around 25Mbps. Using Win98 typically drops that to closer to 20Mbps, and having any 802.11b stations (clients) associated to an 11g WLAN will drop maximum throughput to around 12Mbps.
TIP: See our 802.11g NeedToKnow - Part 2 for more info on what happens when 11b and 11g clients mix on the same WLAN.