Servo tunning?

I am just about done with my mill/drill conversion when I mounted
up the pulley for the ametec servo motors 600 oz/in I did some
test runs checking the strenght of the motors by holding on to
the pulleys by hand when rottating slowly.
I am very impressed with the tourqe on those motors I was not able
to hold them by hand.
When the motor is holding steady I was able to turn them about
2-3 degree ether way before the tourqe gets up to full power.
Logic would dictate that there has to be some movement but I would
like to try to get this down some.
The motor is using 250 quadrature encoders is this part of what
determends how much deflection one would have to put up with?
There are 2 adjustment options on the driver board gain and torque
limit, my question is will this be the right action to take and
is there a procedure on how to do it?
What amount of deflection would be normal for a well tuned system?
Since this has about the same effect as backlash I wonder how much
of it I will be left with?
Do stepper motor have a advantage here it seams like they would not
experience this problem?