for the choppy gameplay of the server: the problem is, that there are 2 tasks on your computer that request under heavy load. The solution are task priorities. Set you server to high priority so that it will be more important then the client task. You can do that with the taskmanager.
for the advertising: there are 2 mechanisms:
1. The LAN browser makes a portscan over the current subnet afaik and scans for the default UT ports. This will not work over the internet.
2. The usual serverbrowser shows all INF servers that are listed on the epic/ut so called masterserver. To be listed on this one, you have to enable advertising. You can find it in the menues or in the ini under
[IpServer.UdpServerUplink]
DoUplink=True
Is the "connecting" written in white or blue letters? White means, he cannot connect to your IP, blue means, the serverpackages are not configured properly.
If your friend cannot connect to your IP, then something in your networks blocks him - be it a firewall or the wrong ports routed through. You usually have to route port 7777 and 7778 through.