I am wondering if the letters aren't the result of them being too small. The picture below is my second attempt at an address sign, done in oak. The letters are almost an inch, and the thin areas couples with the oak splintering caused several letters to break up similar to yours. I've since switched to using MS Word fonts, copying them in Corel, then importing into Designer for recessed lettering (back door Centerline fonts I guess).
Note: this is also the sign where I learned that you don't program the extra 7" for the rollers into Designer.