Here is my quick, untested attempt at a fix (v1.23 / v1.23+):
Patch Jazz2.exe at position 0x885C5 from "76" to "EB".
Patch Jazz2.exe at position 0x887B9 from "1C" to "00".
Patch Jazz2.exe at position 0x887FF from "8A 51 3E" to "B2 07 90".

What this hopefully does is:
The first two patches prevents the server from sending any information to a client about other players that are not within his screen (given by |dx| < 640 and |dy| < 480). The third patch tells the client that all other players have 7 hearts of health.

Would be nice if someone (preferably with the aforementioned cheating program) could test this.