I too have fired Mil. Spec ammo in my 223's and have all found the same result. The best I ever got was a one time group with 55gr Wolf HP of about 1 1/2" and I do say one time.
Remington UMC shot better (1" pretty consistantly) and after my barrel broke in the WWB 55gr FMJs shot as well as the UMC's.
Though these 2 I consider safe in a Handi and not exactly Mil. Spec.
It's worth saving your $$ and putting it to quality ammo (that is now only about $1 - $3+ more than Mil.) that will be more accurate, give you less problems, and be even safer in your firearm.
Reloading for the 223 is pretty cheap, as it goes very easy on powder. And bullet selection ranges from very cheap to Match grade.
-Aaron