Yes, I've noticed that with the high difficulty, my hashrate jumps between 220 (when I get a lot of rejects) and 410+ kh/s on a 380 kh/s setup, from what I remember. Most of time time it is reporting near or slightly above the actual hashrate, I believe.
Over the course of a day or 2 it definitely evens out, so the high difficulty isn't an issue I don't think.
Also, that idea about the algorithm sounds like a good idea in theory at least. I think that we could perhaps mine the 2-3 most profitable coins and then split the earnings between everyone, if that's possible to do, if we grow huge(r) and start having issues with wrecking markets even more so than we probably do.
EDIT: At the current exchange rate, I got $10.83 in BTC last payout. That's awesome! Also I noticed that Multipool.us has a Dogecoin pool now. I have a feeling that, if Doges continue to be insanely profitable, they're going to get destroyed by pools like ours and multipool's. Kind of sad because I think the whole idea of it is hilarious.