Decklist in case anyone wants it.
So earlier today I was talking with Zinac about timing and synchronization issues in fighting games. More specifically, the cases that need to be handled with respect to packet loss and frame loss. These are actually very different things!
http://mauve.mizuumi.net/2012/07/05/understanding-fighting-game-networking/ explains it well.
The tldr is that when a discrepancy in the simulations occur between the players, it rolls back the game state and then fast forwards the simulation with the correct input data to catch up to the present time. So yes, if you set the input delay too low depending on your latency, it will look more choppy and skip animation frames. This is also the reason why you see "teleporting" characters in these circumstances.