If size isn't a problem, get a Meade ETX90. Originally intended to be a small astronomical scope, it has become very popular as a spotter. Under ideal conditions, you'll see .223 holes at 1000 yards. For smaller and more portable sizes, try a Kowa 50mm compact with a 20x eyepiece. I haven't got the hang of html yet so I can't make an active link here, but go to Camera Corner at www.camcor.com; they offer plenty of scope options at good prices.
Rule of thumb for optics: the human eye (should) discern at a resolution of 1 minute of angle. At 200 yards, this is 2 inches. A .223 hole is roughly 1/10 that, so a minimum 10x is required in this case; 20X will give you better resolution in bad conditions. Too much above 24X results in increased mirage, image wobble, and small field of view. Larger objectives give a brighter image but increase the size of the scope. Like you found out, el cheapo optics can ruin viewing even if you have enough magnification.