Slick, I had very similar issues to you.
My internet was working fine, could download things at silly speeds but when playing games it would lag and be crap. To some extent I still get some issues but what it ended up being was too much noise in my downstream cable from my ISP. Spoke to Virgin Media who did some checks and idetified that I had too much noise. A Virgin "engineer" came over and fitted a transducer to the back of my modem to reduce the noise levels and its been considerably better since.
I can now check my noise levels (Telewests original commissioned rates were +/- 6dB, mine was -20dB) by entering the IP address of my modem (along with a default username and password which Virgin provided me with) and interrogating it, Im guessing you can do a similar thing with Sky? May be worth a call if nothing else.
I am also assuming ADSL (which is what Sky is at its BT?) and my Virgin Medai cable service work in very similar ways? No idea

HTH