If someone uses the term "lapsed Catholic" to describe somebody (or himself), I usually take it to mean he's pretty much stopped doing anything Catholic (e.g., he doesn't pray the rosary, go to Mass or other sacraments, etc.) but has not officially joined another sect of some sort. He may or may not actually believe in the Catholic Faith, but he doesn't do anything as if he believes. He might be an apostate, a heretic, or just someone who has despaired of any hope of salvation or who presumes his salvation.
I've never heard anyone describe someone actively a part of, say, the a Lutheran church, as a "lapsed Catholic". To all outward appearance, a "lapsed Catholic" has no visible sign of religion.