Hi Craig,
A couple of comments:
The La Pavoni is very touchy about grind and tamp. Very touchy. The slightest little change (such as a different bean or being even a hair off on the grind) can send the shots straight into the sink. However, when you get it right, the shots are quite good.
It sounds like you have a machine that is similar to mine. I'll post a picture below for comparison. What I normally do is fill up the boiler with water until it's just filled up the view tube and/or until it's about 2 inches from the top. I usually leave the top off and turn it onto II. When the water starts to boil, then I turn it back to I. If you have the top screwed on, then turn it to II and then when you start seeing steam coming out of the bypass valve, then flip it back down to I. Sometimes I just turn it off and on to keep the steam coming out, but not coming out too violently. I also usually pull a blank shot through the portafilter to pre-heat everything and also to check the water temp using an instant read thermometer (the kind you use to check the temp on your milk when you are learning to steam/froth milk).
As mentioned above, a good method is to grind too fine and choke the machine out and then start going more coarse. The other method is to start too coarse and then gradually make the grind finer. The tamp is used more to fine tune in my experience, once you start to get close with the grind. If the grind is off, then usually as soon as you lift the handle, water will come pouring out of the portafilter (without even pushing the lever down).
The method I use is typically this: grind, tamp, insert the portafilter. Then slowly lift up the handle. You'll see the water level dip in the tube on the side. I usually count to about 5 or so for it to fill (you should be able to feel it a bit through the handle as well). Sometimes I wait another 5 seconds or so in order to get a bit of pre-infusion going. Then push down and keep a steady pressure. The shot should take about 18 to 25 seconds or so if everything is right. You shouldn't need tremendous pressure on the lever - just a nice even firm pressure. If you see the machine bending in half or you are putting all your weight on it, your grind is off. Keep in mind that the leverage on the handle is something like 10 to 1 or something, so if you are applying 20 lbs of force, you are producing 200 lbs at the piston. I may be off on the exact ratio, but it's something to that effect.
When I use new beans (or even getting the machine rolling), it's not uncommon to pull 4 or 5 wasted shots while dialing everything in. I usually write down the grind specs on each bag of coffee, once I get them sorted out. As mentioned, fresh beans make a world of difference, as does a good quality Espresso blend.
When you have the grind correct and the tamping pressure about right, the finished puck of coffee should knock out in a single solid unit from the portafilter basket. Also, it's important to clean the group head gasket between each shot in my experience. Also, many people replace the gaskets and use a round O-ring, as opposed to the square O-ring you are supposed to use. Having the square one makes a big difference on the sealing.
Good luck! The La Pavoni definitely takes some fiddling with in order to get it to work well. If you are coming from a high end semi-auto machine with a PID, you have entered the other end of the scale as far as pulling your shots

The La Pavoni is sensitive to every little minute change. For example, I use the Kyocera ceramic hand burr grinder and I have the adjustment knock notched in 16 increments. Just 1 click off on the grinder and the shot is usually toast.
Ray

