I've upgraded the firmware and the wheel is indeed a lot better than it was. It still feels glitchy, but it's a significant improvement over how it was before. Just trying to practice scrolling up and down the list, I'm still experiencing the same problems, just not as badly as before. Sometimes, a quick movement of 3 clicks moves the cursor exactly 3 items down the list. Other times, the exactly same gesture moves the cursor only 2 items down the list.
I'm sitting here doing the exact same movement over and over, 3 clicks forward, 3 clicks back, 3 clicks forward, 3 clicks back, 3 clicks forward, etc, and the wheel is not consistent. The cursor keeps jumping around all over the place - 3 items up, 2 items down, 3 items up, 3 items down, 2 items up, 3 items down, etc. It's definitely less frustrating than before, but it's still frustrating and not consistent.
Maybe this is as good as the responsiveness can get. I suspect the root of issue lies with the physical properties of the wheel. The wheel has physical increments built in to its scrolling mechanism, so you can actually feel little clicks as you turn the wheel. The annoying part is that there is resistance to each increment, and you need to apply a little bit of force to the wheel just to get it to start moving. But then, when it does start moving, it moves too fast and seems to 'jump' to the next increment. It's almost as if the amount of force that it takes to overcome the resistance of each increment guarantees that once it actually starts scrolling, it will scroll too fast. You have to apply a certain amount of force to overcome the resistance of the scrolling increments, but you have to be very careful not to apply too much force because it will jump too much if you apply too much force. Even with perfect responsiveness on the software side of things, it just feels like the wheel's physical movement from increment to increment is awkward and flighty.
Also, the wait time when changing screens is a lot longer than it was with the first generation Fiio X3, particularly when you first back out of the "now playing" screen. Is there no way to improve this? Going back and forth between menu screens and moving through folders was instantaneous on the first generation X3, but the second generation seems to struggle with it.
I really really want to like this player, but after owning the first generation X3 for over a year, this 2nd generation has been a huge disappointment for me. It sounds a little bit better and more refined in terms of the digital-to-analog conversion, but this improvement comes at the price of everything that was good about the first generation X3. The first generation had a better amplifier, better user interface, better functionality, better button layout, better color schemes in the menu, brighter screen that could actually be viewed in the sunlight, bigger battery, an actual hold switch. With the second generation, you get a nice improvement in sound quality and a nicer looking player, but at the cost of so much. Some of the shortcomings of the second generation X3 are so basic that, in my opinion, there is no excuse for them, especially considering the fact that the first generation did not have these shortcomings. I wouldn't say that the second generation X3 is a "downgrade" from the first generation, because the DAC quality really is better on the second generation. What's disappointing is that the DAC quality is the only improvement. In all other areas, it is a step backwards from the first generation. It is also thicker. As far as I can tell, the only non-DAC thing that the second generation X3 does better than the first generation is the ability to switch songs without having to temporarily turn on the screen and waste battery. The second generation has the ability to skip tracks with the screen turned off, which is good for preserving battery. But I'm not sure that it actually matters because the second generation has a smaller battery, so while the ability to switch songs without turning on the screen is a nice way to save battery charge, the battery itself is smaller and holds less charge. Perhaps the battery being smaller is also the reason why Fiio decided to downgrade the amplifier in the second generation X3 as well. The amp in the first generation was significantly more powerful.