Why would putting the thread to sleep "smooth" out the mouse pointer? All that does is make your app completely unresponsive.
You're "smoothing", if that's what you want to call that code, the position of the mouse pointer isn't the correct way to go about this.
What you should be doing is called "digital signal processing". You should be "smoothing" your input signal, the position of the users hand (I'm guessing at what you're using) and doing it over time, say the last 5 to 10 position frames you captured.
There are plenty of examples on the web. All you have to do is Google for "
Kinect use hand as mouse cursor[
^]".