I could feel/hear less noticeable knocking as I applied more torque to the cap, but I'm afraid to damage the star nut. Thoughts?
If everythings correct, you won't stress the star nut enough (to damage it) to get the proper preload. Be sure the crown race, or in the case of cartridge bearings (crown ring) is fully and squarely seated on the fork crown. Be certain the bearing cups are square and fully seated in the head tube. If everything is proper the preload adjustment using the top cap and star nut requires very little force.
You do have the compression ring above the top bearing, right?