It's pretty common for a dial thermo on the side to read 40° or 50° lower than a digital in the center. It's just a drum thing. Temp is hotter in the center than at the edges. You can try a difusser if you want, but It's never caused me a real problem though. I've cooked a brisket that would barely fit on the grates and it was fine.
Using a larger basket won't really help even out the temps because you will end up with a bigger fire and will have a hard time keeping temps down. As far as regulating temp, I would leave the big cap off the lid and regulate the air with the intakes. You want more exhaust opening than intake opening so that you have positive airflow and a good draft.
If you were getting up and down variations in temp it could be because often times lump is not very uniform in size. Also if you had 12 chunks of hickory, they may have be catching fire. Most people use 4 or 5 fist sized chunks in a basket of fuel with a UDS.
Stick with it, you'll get it.
The UDS is a little different animal and takes some getting used to.