This is a known issue. At the moment it appears to be a hard limit on the phone/phone software. It's a combination of 3 factors.
1. The amount of time it takes for the camera to start up
2. The amount of time it takes to snap a photo
3. The amount of time it takes to save the photo to the flash
TimeLapse will try to abide by the timing settings you give it but it can't run faster than the sum of these three factors. However, this means that you can potentially get faster performance by decreasing the image size to 'Small'. That should speed up issue 3 and maybe even issue 2.
It's definitely something I'm looking at.