Yes, this “AI aircraft jitter” effect is unfortunately a known issue, as mentioned already here:
and also here:
Quote: “Before you all go and try it out, to properly set expectations: I am still quite disappointed with the replay performance of the AI controlled aircraft! They “jitter” back and forth, and the problem is especially noticeably for nearby aircraft, and at “higher speeds” (anything above 120+ knots or so).”
The problem not only occurs with Sky Dolly, but also with other replay apps (both freeware and payware) that offer a feature sometimes also referred to as “Play as AI”.
As already mentioned this “jitter” effect becomes more prominent the faster the aircraft fly (where “fast” is anything above - roughly - 120 knots or so).
I made experiments during development of Sky Dolly 0.7 to send the bare minimum of “simulation variables” (basically only position and aircraft attitude), but the results were the same. It also does not seem to make a difference (at least not subjectively) whether only 2 or 30 aircraft are flying. In fact, I made the “King Kong” video with 30+ aircraft (“Pitts Special”), and their movement was flawless for most of the time - IF the camera was also a bit further away (so yes, the “jitter” seems to mostly occur when the other aircraft is very close, that is, visible in its highest detailed 3D model).
But I have also seen videos created by other people where the movement was smooth and the aircraft pretty close - but then again, those were “slow moving aircraft”.
The current SimConnect API only allows to send “one simulation variable request packet” at a time, so the “client” (e.g. SkyDolly) has to iterate over the aircraft and update them sequentially. I will try to suggest an API improvement to Asobo which would allow to sent N request packets “at once” (with one function call instead of N calls - possibly even of different type), but not sure whether it would actually help (the root cause of the problem is unknown to me - but it seems like that FS2020 is “prioritising” certain tasks every then and when and hence “forgetting” to process some SimConnect requests - why that seemingly only happens for “nearby aircraft” I don’t know).
The upcoming “performance improvements” (expected to be coming end of this months, together with the XBox version) may also help, as Asobo mentioned that they have also improved their “multithreading code”. We will see.
Until then “manual formation flying” should be restricted to “slow aircraft”, I am afraid. Or move the drone camera a bit away (which is only usefuls for “cinematic movies”, not for actual “formation flying”). Of course I will experiment further and see whether any “client side” improvements could be done. But right now I don’t have any “promising ideas” anymore 
On the bright side: I have some ideas upcoming for “multiplayer formation flying” - so stay tuned 
UPDATE: note to @administrators: this thread should probably be moved to 3rd party tools discussion topic.