Your sample jpg is a little bit too small to see what's going on there exactly. Maybe you can upload a larger img? Well, there is a small glitch, but as far as I can see, it looks ok.
About the horizontal position.... That something complicated - imo.
I noticed when I set up my camera to this: http://www.su-n.de/images/hori.jpg
my pics stitch better than when the horizontal position is set up correctly!
As well as I noticed, that I've problems with indoor shot. It's hard to get pics stiched perfectly, which are taken indoor - maybe because there are so many details (and lot's of them are very close). With outdoor shots, it's better - still not perfect. And as I wrote, only 3 shot panos do well.
Usually I use the focal length of 7.1.( I don't know if it's the same for our Nikon, but have a look: http://www.panoramas.dk/d60/d60tech.html )