The Logitech Setpoint driver should have an option for mouse sensitivity in there. Max that one first before you use the windows control panel one.
That said, your mouse is optical rather than laser. Optical mice tend to exhibit this problem fairly severely when you start to increase sensitivity regardless. I put one of my old optical mice on my backup PC a few weeks ago, and with Setpoint maxed, and the control panel set to maybe 60-70%, it moves in jumps of 3 or 4 pixels at a time, and i still significantly less sensitive than my main mouse.
Even maxing both, which resulted in jumps of 10ish pixels at a time, it was still not as sensitive as I like.
If you really want to crank your sensitivity up high you need a laser mouse. Even a good 800 DPI laser mouse will perform significantly better, but a 3600 DPI+ laser is best to be sure.
I use a Cyborg RAT7 @5600 DPI, and the smoothness is amazing. At the max DPI setting I have my control panel set one below max, and it takes me less than an inch of movement to move the pointer completely across two 1920 screens (I use low acceleration) and the movement is still 100% smooth as well.
There were a couple features on my last mouse (Logitech MX Revolution) that I still miss, but if you're a fan of extremely high mouse sensitivity, a 5600 DPI laser is a thing of beauty. There's just no other way around it.