Glad to hear you were able to improve the sound quality somewhat.
I've never owned a small Columbia (pre-1925) Grafonola, but have listened to quite a few. They are generally more mellow than their Victor counterparts, and do seem to handle later records a little better, probably because of their larger sized diaphragms.
If you experiment further, you can also try different settings for the needle bar pivot, which may enhance the sound quality. Ideally, you should set it for the minimum resistance required for the diaphragm to plunge in and out with the movement of the needle bar. If too loose, though, it can cause buzzing on some notes.
Personally, my favorite era of "wind up phonographs" is the late acoustic period--those manufactured after the introduction of electrical recording. I've owned some Viva Tonal phonographs, and several Orthophonic Victrolas over the years. My favorite, of the smaller models, was a Victrola VV-2-55 that I was stupid enough to sell some 20 years ago. The sound quality was amazing for an all acoustic, non-electric portable phonograph. I've only found a few Youtube videos that do this justice. This is probably the best --
http://www.youtube.com/watch?v=dvvWPybVe-MJoe