If we're talking about calling update() on 2000 mobs that are in an LpMUD (or similar kind of environment), the lag might not even be caused by the functions themselves. I can't say how other systems work, but most LpMUD systems swap out objects that haven't interacted with a player for a certain amount of time *OR* when memory use is high (in which case they swap things out to make room for swapping other things in).

So, 3-4 seconds of lag sounds bad, but it might be poorly designed update() functions which check things too often, or it could also be the work of reading and writing objects from the disk store, as they are swapped in and out… or both! :)