There was one particular setting on the Harmony remote which is not obvious to find and which affects the way the remote sends repeated commands. By default the Harmony profile sends the original IR signal + 3 repetitions to make sure the device gets at least one of them and responds correctly. This is causing a slight lag when quickly pressing an arrow key to advance through menus or scroll the library one-by-one.
The solution is to set the harmony's repetitions to 0, in addition to inter-key delay = 0. This is done counter-intuitively through the Troubleshooter in the Harmony Software as described on post #6 on this thread.
Recommended Harmony device
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Thanks for the information!! After making the changes, my Harmony One remote is working perfectly with the Flirc and the XMBC on the Raspberry Pi.