No, definitely not the core hardware problem. But it kinda is a hardware related issue.
Lag is due to the fact that Galaxy S uses internal flash memory to store cache ( part of 16GB is used for this ). Now this internal flash memory is dead slow. its slower than the fast microSD cards. So when app loads and needs to access the cache memory from the internal flash, it causes slowdowns.
There are 2 lag fixes available. One is by paul (modaco) and other is by Mimocan.
Modaco uses internal fast NAND and Mimocan uses ext3 partition on external SD card.
Mimocan's fix is better as it does not touch internal NAND which is usually used for app storage and if used to fix lag it can causes that space to be used by cache and not become available for apps. And some apps have issues with this fix as well.
So even with 16GB of internal flash, you basically need a microSD card to cure lag.
I dont know how samsung is going to fix this to be honest. They should have used faster internal memory. Or maybe they need to patch future firmwares in a way that that they automatically use external SD for storage if its found.
Anyway, thats how it stands at the moment.
For me, its not a big deal as I have Class 10 MicroSDHC card with me. And fix is relatively easy to do if you know what you are doing or you know how to follow instructions to the point