The problem is most likely with the gyro and set-up. Check to make sure the gain is not too high. Reduce the gain until it stops wagging, as long as that is before it stops holding! You did not mention which gyro you are using.

Make sure that the tail control rod is very free to move in it's travel and it takes very little effort to do so. This may take a little time to get right. Next, make sure your servo is fast enough to keep up with the gyro's commands, if it is not, the wagging will be the result. You did not mention your servo choice either, this makes a big difference at times. A large wheel on the servo sometimes helps here ( it makes the servo appear to be faster to the gyro, but your torque and resolution suffer though).

Make sure that the servo tray has very little play (none is best). Most of the older bent frame birds will suffer from a little front tray movement and this needs to be minimized and then dampened if possible.

Is the gyro mounted firmly, yet not so much as to keep it from being hammered by any vibration? Bent frame helicopters benefit from the use of Zeal gel gyro mounts. You can also do the old "stacked mount" trick. Put down servo mounting pads and then a small plate (aluminum works well) the size of your gyro mounting area, then mount the gyro with mounting pads on top of this using a 90 degree lay-up of the pads (opposite of the lower pads orientation) and make sure the gyro is secure. The 90 degree lay-up orientation of the pads helps to keep the gyro from rocking.

Make sure that the helicopter is as free from vibration as possible, balance everything in question (it is worth it). The motor must also be set properly as if it is not happy, the gyro will not be happy.

Keep the bird though, it's a good one!!

Hope this helps!