A dedicated server is no different than a client that is "dedicated" to the server position in COD or Halo... Yes lag switches work in this game.

If the calculations are done server side, the switch won't work. If the server is dedicated, but each client does all the calculations locally the switch would work since it would just send all the packets at once and teleport around.

Client side calculation has less lag and easier on server hardware if any, lag switches work.
Server side calculation has more lag, but harder to cheat without hacking into the server.

Dust does to calculations on the server and overrides the client if there is a conflict between them, like the rubber banding back when lagging.

If there is a dedicated server, but client does calcs and server trusts data sent to it, lag switches sending packets all at once would allow tele-porting around and firing whole magazine of sniper shots at same time and other nonsense. Sad to hear Killzone 2 did it like this, picked it up used recently and haven't tried online play yet.

Peer to peer with a host player that is the server, if calcs are done server side only host can lag switch and if done client side all could use lag switch. Host could do all kinds of hacks to see through walls, lag switch to freeze enemy movement when aiming, ect.. I try avoiding games that use this system.

A lag switch in dust would make your shots not fire while it is on and all movement would rubberband back to starting point when it reconnected. Other players would see you standing still doing nothing, and their shots would register. When you turn lag switch off your client would find out about the damage you took and update your health.