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The lack of clarity in the description suggests closer observation and some diagnostic fiddling is required, huh. @Aroogah - is it that the headset won't keep its adjustment, or, as you seem to be saying, somehow it won't let you adjust it in the first place?
Sometimes if the thread slot is munted and/or the tab on the washer is mashed, it's better to just file off the tab so it stops interfering with the situation.
But yeah, I've also come across some quite severe rattles between steerer and cup; with the headset as well-adjusted and tightened as possible, a clunk under hard braking followed by the headset inevitably loosening itself ensues. Kind of amazed in retrospect it never occurred to me to try thread tape in such instances... I guess I only started using it after I no longer had much to do with threaded steerers.
If the threads don't go down far enough on the steerer, that should be obvious as hell - spin the cup all the way down and it stops rattling on the steerer but the fork still rattles in the headset.
Keep your money gun holstered IMO - unless you don't have any thread tape. If you can get enough jammed in there, it should compress pretty hard and allow the locknut to hold the cup solid. It might take a couple of goes.