Well, I'll chime in with my $0.000002 (after taxes). I use a rotary every day on BMW's for reconditioning, so here goes:
1. Pad size is way too small (except for headlight restoration). You are going to generate a lot of heat with that size and could burn the paint (this is from my own experience). Move to an 8" pad or the Meguiar's So1o 7" pads.
2. I work a small area (18" X 18" or so) slooooooowly, until the product disappears. And, never, ever, ever wipe compounded areas with a microfiber. That just induces more scratches. If you want to clean a compounded area, keep a bucket of ONR handy. There's enough lube in ONR to safely pick up the abrasive grit that's laying around.
3. If you are getting a caked on situation, you either have too much product on the pad or it's drying out too quickly. Try misting some plain water on the pad.
Finally, like Scott and others, I work the rotary between 1,000 rpm and 1,200 rpm.
Good luck
Toto