It looks totally different to my KG100, so it may be a different burr set.
If its on the finest setting & its definitely not fine enough (ie its not your technique), then you might be able to take it apart & re-set the burrs closer together.
Youre right, the easy answer is "go and buy a proper grinder" :)
The Sunbeam EM0480 or Iberital Challenge or Gaggia MDF are good starting points...
EDIT: Have a look at Alan Frews grinder page here: http://www.coffeeco.com.au/articles/september2002.html
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