There are only a few reasons I can think of that it wouldn't be smooth:
The LED is not bright enough, the wiimote is positioned badly, or the wiimote simply doesn't track accurately enough for the amount of accuracy you want. It sounds like you've tried a lot of this already, but you might try checking the battery voltage/resistance(rechargeable AAAs have less voltage than regular AAAs), bundling a couple of LEDs together, and positioning the wiimote as close to the screen as it can get and still see all the corners and as aligned with the screen as possible(also make sure that it's not at an angle where your hand might occasionally block it). I had a lot of trouble getting my homemade pen to track well with an LED I bought at radio shack, but the key chain light I bought off line which is much brighter tracks very smoothly. Perhaps you could get the same effect by bundling several LEDS together.