Headset, Grinding -not smooth-

You should be able to tighten the locknut down onto the top race (independant of the tightness of the top race). Also there should be a notched washer between the two.

a good tip i got off Murt was to tighten the bottom nut right down (1/2 a turn too far), then add the second nut till it hits the first. loosen the second nut half a turn and whilst holding the top nut loosen the bottom one 1/2 a turn untill they lock