3 inch high by 1 inch wide groups at 200 yards is a 1.5MOA group, which is pretty respectable for a service rifle. That beautiful, real-world 10-shot 500m group that carbonrod posted is about 1.25 MOA high - and that kind of target will usually win a match. My AR-15 shoots 2.5-3.0 MOA groups at 100m, and is probably a better representative of what can reasonably be expected/demanded from a stock service rifle.
Do go ahead and work on improving your rifle's performance, if there is a consistent pattern of vertical-shaped groups there probably is a fault that you can find and fix; just realize that you're probably closer to the limits of what is achievable than you might think.
You ought to be able to get velocities more consistent than 90fps extreme spreads. You should *definitely* be able to get under 50fps. And with the right kinds of powder, primers, etc you can even get under 25fps, though that is a heckuva lot of work. Fortunately, 25fps spreads are only really needed for 1000y+ shooting, so don't sweat it you can't end up getting much better than 50fps spreads.
It sounds like you are being fairly meticulous in your loading (BTW, knowing what kind of bullet, brass, powder charge, primer etc would be useful). My first question for you would be whether your load might be too mild. Mild loads (as Ganderite says) are often fairly erratic in the velocities they produce. Oftentimes a bolt action target rifle can shoot mild-but-erratic loads with extremely good accuracy at short and mid ranges (100y-600y). But a semiauto is such a more complex system, that it shouldn't be surprising if it turns out that they are fussy and demand very consistent ammo in order to shoot to their potential.
