I don't think the Linux NiosSerial driver (for the altera_avalon_uart) supports RTS/CTS... and I don't believe that the JTAG UART driver supports it either.
In fact, depending on which development board you're using, you may not be able to get RTS/CTS support at all since some of the DB9 pins may be re-mapped or not connected at all.
As for how to improve the the performance of the UART... without the extra signals, you've gotta pull the data out of the buffer faster. So... faster design? Less stuff going on in the background? higher priority interrupt?
hope this helps.