I have the same set from Busy Bee and have used it with a 1/8 bit without any problems. The only tips I can give you is to have lots of light on the workpiece and use a lightweight router like a Colt and go slow.
Frank I think your main problem is the router. I know there is no way I could handle a large router like that to do fine work like you are trying to do. I have a hard enough time staying within the 1/8" cut with my small trim router.
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