@Adrian - well said, and I don't disagree with your analysis of microstepping or the need for an m3 versus and m5, only that all things being equal, I found little reason not to go to an m3, and going to a finer rod has some probable additional benefits (less backlash, flexibility, etc) with little downside. Also, IMHO, finer banding looks better than coarser banding even at the same amplitude, at least for banding that is tied to the thread pitch (more on that below)
As far as microstepping-based banding, I agree it can be one cause of banding-like symptoms, but I am skeptical that it is the *primary* on the solidoodle cause for two reasons:
1) Many people have tried changing the layer height to one that will result in no microstepping. A few have claimed "some" improvement, but only one AFAIK on the solidoodle has found total success, and he may not have had the typical banding most of us have seen. It did not work for me. Yet, I think you'll agree that if banding were due to microstepping, and you set the layer height to one of these full-step values (1/200th thread pitch) that one should see *no* banding at all, since no microstepping is occurring at these values.
2) The banding most everyone else describes is sinusoidal in amplitude with a period exactly equal to the thread pitch, regardless of layer height. I can't see how microstepping-based banding could exhibit this profile, as a graph of the attempted microstep values shows a repeated function with a higher frequency than the thread pitch that also varies depending on the layer height. Instead, I'd expect to see any banding to have a more chaotic profile with a higher frequency than the thread pitch. If the microstepping behavior were more random as you describe, then of course the profile would be even less sinusoidal than observed.
However, I think everybody who has changed z-rods has gone to an m8 or smaller metric zrod, which tells us very little about the actual cause of any improvement they see, in terms of metric versus imperial, coarse vs. fine, or low-quality vs. a high quality rod. My suspicion is that changing to *any* other z-rod (including a higher quality 5/16-18 rod) would probably yield significant improvement. The choice of how fine to go is probably much less important than making any change at all.