You need a new pilot!  ;D

The real plane does the same thing if you are not zeroed out on the IVSI.

Level the plane by either hand flying and trimming to neutral, or use the pitch control knob on the autopilot and zero the climb or descent to a very small amount - one to two hundred FPM before selecting altitude hold.

Now I know the trim is hard to do using the main electric trim, and the autopilot pitch control knob takes a bit of finesse, but it can be done!

As you approach an altitude for level off, hand fly the plane to the altitude by using the yoke. When the FPM on the IVSI is zero, engage the autopilot and select ALT HOLD - the autopilot will trim out any pressure in the yoke. Another way is to use the pitch knob to control the pitch on the ADI. You can see the pitch degree angle readout as you move the knob. Tickle the pitch knob as you approach the selected altitude so the last 1,000 feet is under 1,000 FPM. As you near your selected altitude, continue to use very small taps on the mouse button via the pitch knob on the autopilot. With practice, you will find you can get it pretty close to one to two hundred FPM. Select ALT HOLD as you reach your altitude.

If need be after the autopilot settles down, and lets say its a few feet off, you can take altitude off and make very small corrections to the pitch knob and re-select altitude hold.

That is the way the 727-100 really worked! The 727-200 autopilot pitch knob was a bit nicer to use.

Lou