First off, those cheap headsets will never be very smooth. Get some good synthetic automotive axle and bearing grease, and completely coat the bearing cages and races. When adjusting the headset, get it just tight enough so that there is no play between the fork and frame. You will probably have to settle for some roughness when turning the bars in order not to have any play. Also, you will probably have to re-tighten the headset several times after riding before it stays adjusted properly.