Tests have shown that animation quality of the "Base" and "Additive" layer degrades in varying degrees based on whether someone is using VR or not.
Desktop users generally have bad animation quality for locomotion, their animations look like they are missing a lot of keyframes and basically degrade to just sliding over the ground even in close proximity.
VR users (Head and hands) have much better animations, they are visibly much smoother and more accurate to what the player sees on their on screen.
Full Body Tracking users seem to get the best quality with animations looking exactly like they look locally.
This seems to be related to a problem with Networked Kinematics. Networked Kinematics seems to relay the entire the Base and Additive animation layers to others rather than using and playing the provided animations coming with the avatars. This not only unnecessarily increases bandwidth it also makes animations look on Desktop users incredibly bad.
A solution would be only networking differences, such as the desktop arm-raise when grabbing items and headlook. Everything else is provided by the animation layers and since everybody downloads these with the avatars they are already available and they just need to be used locally which they currently aren't.
Tests have shown that disabling Tracking in the VRC Tracking Controller does not fix this (Networked IK is seemingly always enabled), ping does not seem to have an impact on this either.
Test videos:
As shown in the test videos, disabling the tracking (setting it to animation does not help). Also shown that animations played from outside the Base and Additive layer are not subject to the quality degradation.