Don't put any more torque on the axle that is recommended.....it will not do anything to reduce the wobble. Once the axle is tight and all the play is taken out of the spacers and bearings.....more torque won't change the clearances any.
Since this thread was posted I have learned a lot about the rear hub design. Unfortunately the only thing that is keeping the rear hub in alignment is the ball bearing in the pulley hub. When new the bearing doesn't allow much wobble - but the bearing quickly wears and begins to have play and allow the wobble. A new pulley hub bearing will reduce the amount of wobble for a while - but it will come back before too long.
The easiest fix is to cut some rubber carpet runner, floor mat or mud flap and install it between the rubber cushions and pulley hub. You can put a dab of silicone on them to hold them in place during assembly.

As I got more involved in this, I discovered that the pulley hub does slide into the wheel hub - but for some reason the parts are loose fitting and it does not provide any support. I machined a bushing from brass so that the fit is closer, and it eliminates the pulley wobble entirely.

I have been riding on this modified hub for a year now, and it works fine. If you have access to a lathe (or someone that does), this is a good fix.