LinuxCNC-RIO - RealtimeIO for LinuxCNC based on FPGA (ICE40 / ECP5)

I am chasing a weird issue. I reduced the microsteps on my machine from 16 to 2. That changed the scale from 540 to 80 on x and y and 800 to 100 on z.

Now my machine is not homing anymore. I get this error: home switch inactive before backoff.

Here is what I have done so far. 
1. Changed the Microsteps from 16 to 2. And just changed the rio.ini file. 
2. Machine started homing in the right speed settings, but threw the above error.
3. I changed back to 16 microsteps and the machine is homing fine. Changed back to 2 microsteps. 
4. I tried to reducde the home search velocity, but no change. 
5. I increased the home search speed and the machine is not showing an error, but is not homing. It does it homing cycle, but then continued to go in slow speed. I believe towards home, but not sure.  

I tried to reduce the mircsteps from 16 to 4 and played around with speeds for homeing. I am able to home. This is now discovering the real issue.

When I manually move an axis of the machine sometime it stops. And sometimes it continues to move slowly. For example in X I see in the display that X is 0.00000 and jumps around to 0.006252 or so. I believe this has happened already and has something to do with the F error or F min or so.

Well, it's all working again. I increased the deadband from 0.001 to 0.01. Now it's also working on the old speed settings and with 2 microsteps.

Seems like there is still one question remaining:

What would be the ideal set up for a stepper motor with 5mm pitch ball screw and 1.8deg/step paird with a DM332T which can't go below 2 microsteps. Is there a setting which is ideal for this set up where linuxcnc positioned the machine on exactly a step/microstep?