Hi,
You are describing the exact same issues and performance of most Pocket PC cameras in general and HTC non-led non-flash cameras in detail I'm afraid. The shutter lag is also a pain, on my pre-production HTC Cruise the picture freezes onscreen when the shutter is pressed but the actual image is taken nearly a second or so later in low light, normally meaning the camera is now down by my side!
My old XDA II and Mini XDA (O2 branded HTC devices) did the same type of thing. It seems to get worse as the resolution of the camera increased over the years.
To get good pictures from the unit and most PPC cameras you will need strong light, preferably sunlight.
Working indoors requires a steady hand and no movement of the subject.
I wish the manufacturers would use a proper flash like the Sony Ericsson cameraphones, but as PPC's sell more to business than home users, the addition of 3G and other technologies seem to be more of a priority than a decent camera.
Sorry, but you are describing the correct functionality of the device at present.
Regards
Ivan