I can confirm that with the vanilla game, no dlc, no mods, no skse, no enb, both with full screen or windowed mode, in third person, whenever the player character or camera (whichever comes first for the new cell) crosses a cell border together with a high value for fTreeLoadDistance=1000000 causes drop in fps. It seems like the game stops everything else for a brief moment to do something. If I had to hazard a guess it probably iterates over all 40k++ LOD trees over and over again.
It stands to reason the engine always does this loop and it only becomes really noticeable when there is a large amount of LOD trees to be processed. I did look at other ini settings but haven't discovered any that would change this behavior - slim chance. However, I only spent a couple hours on this problem.
Since I can reproduce this with just vanilla, I can conclude the cause of the problem has nothing to do with mods, scripts (AFAIK no papyrus script executes because camera crosses cell border) or size of textures etc.
There is no such effect when in first person. To me this fact alone points to something odd being done in the game engine. Also happens with version 1.8 btw
Tests done with i7 @ 4.5GHZ and NVIDIA 980ti. I am assuming hardware doesn't matter, but you never know - while very unlikely, maybe the odd thing is done in a driver/directx and doesn't halt everything else in other versions. Some testing with other hardware/drivers should be done.
Just to recap, the drop on fps and stutter is noticeable in a vanilla game with high settings and only fTreeLoadDistance changed to 1000000. The easiest way to test this is to stand near a 4 cell border intersection and pan camera around the player character. Cross the cell borders in first person and there is no stutter at all.
If it comes to tree LOD and DynDOLOD, currently one workaround is to completely disable tree LOD and use the ultra trees from DynDOLOD. (see Options\trees.ultra\ in the DynDOLOD archive) However, if the hybrid trees are too performance/memory hungry, the 2D billboards (LOD8 setting from ultra) can be used instead for LOD4 and then overall performance should be the same as with tree LOD. The downside currently is, that object LOD always fades - tree LOD switches. Also this method only supports vanilla trees because atm it requires manual work to create the 2D mesh versions. Also the 2D flat trees included are supposed to be used for LOD8/16 and the textures may appear too dark and coarse for LOD4. These are all things that would/can needed to be worked on to "solve" this problem.
There is the option to use tree LOD only for the same distance as LOD4 object LOD, and then add the 2D billboards to static object for LOD8 and LOD16. The problem with that is, that tree LOD always switches 4x4 cells, while LOD8 switches 8x8 cells, so I think there needs to be a bit of overlap. I will program this option into next version of DynDOLOD so people can try and test it.
Otherwise play in first person all the time or limit max LOD tree distance.