Are you using the auto font letting in Pulse? or have to manually digitized the lettering?
Digitizing the lettering manually will give you better quality.
My first suggestion will be to change the font you are using, Goudy Bold is always a pain and will leave you now where after all the struggle you will make.
Try any other similar font, with about 0.22 pull and center run underlay.
If you cant change the font, i would suggest you to use standard backing for the back and water disolving stabilizer for the front of the cloth and then re-try. That would keep up the stitches from sinking into the cloth.
Regards.
__________________ Almost 12000 satisfied customers enjoying just half the price.