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There are several factors that contribute to proper autopilot operation.
The first is correct installation, good clutch torque settings, bridle cable
tensions, etc.  Autopilots track well in heading mode (heading bug in D.G.
or HSI because when you rotate the heading bug, an error signal is sent to
the autopilot, which turns the aircraft until the error is resolved, then it
flies the aircraft holding that error signal at zero.

When you couple an autopilot to a VOR, the autopilot is slaved to the same
left-right signal from the nav receiver that drives the vertical needle in
the VOR indicator.  Therefore, anytime the VOR needle even twitches to the
right or left (a common situation, particularly when near the VOR), the
autopilot will twitch right or left, causing the poor tracking you
described.  Some autopilots have a "Soft Mode" which dampen the response to
the VOR input, reducing the problem somewhat.

Coupling the autopilot the the GPS will provide probably the smoothest
tracking of all.  Enroute, the GPS is tracking to a fixed point in space, so
there is no right-left deviation.  No matter how close you are to your
selected waypoint, the autopilot should track smoothly.  All panel-mount GPS
receivers provide the left-right outputs required to drive an autopilot.

>From practical experience, a correctly-installed S-Tec autopilot in a
Lancair will fly the airplane like it's on rails.

David Buckwalter
Avionics Systems
<http://www.AvioniKits.com>