Yeah, 7-8 ounces is way overkill.
Typically for ribs, you will only want to use 2-3 ounces and for longer smokes like butts/briskets you'll use 5-6. Really 6 ounces is probably the most you are ever going to use for any smoke.
Here is a thread that includes a guide on Cooking Times, Temps, and Woods:
http://smokinitforums.com/index.php?topic=2151.0Regarding the temp swings, for a smoke with a relatively small piece of meat in the #3, the swings that you experienced are totally normal and won't affect the results.
If this really bothers you, you can get an Auber and that will hold your swings between 1-2 degrees typically. I haven't bothered with an Auber as I don't care about the swings at all. I will put my results up against an Auber smoked product, and doubt you would be able to tell the difference.
That being said, the Auber does offer some cool features such as programmability. You can program specific steps such as smoke at 150 for the first hour, bump up to 225, smoke until the internal temp of the meat hits 195, and then put the smoker in warming mode at 150. This is just an example of what you can do with the Auber.
I have pretty much bought all of the options except for the Auber, so I'll probably get one at some point. But it is definitely not needed.
