As for the framerate problem, I think I recall reading something about c2 capping the framerate at 60. If that's the case, I'm guessing c2 might also be clamping the dt value? I know it does on the low end, to make sure if the framerate goes too low sprites don't start teleporting through walls. If it's clamped to not go above 60 fps, then going above 60 fps anyway would cause the behavior you describe.
@Ashley - is that the problem? Does c2 try to cap the framerate at 60? If so, why not let computers run at higher frame rates than 60 if they can/are doing so? I tried 120 hz on one of my cc games once and it was awesome. There are gamers out there who get 120 hz monitors specifically for that silky smooth gaming experience. Also, wouldn't capping the framerate to 60 cause jittery frame rates on any refresh rate that's not a multiple of 60?
If c2 doesn't try to cap the framerate, though, never mind. ^^