I had the same wheel and suffered the same problem, from the day I got it to the day I returned it to PCWorld and exchanged it for a DFP.
From what I could work out, it's essentially a hardware alignment/tightness problem. The wheel senses that it's turned away from "TDC", and the force feedback moves the wheel to correct the problem, but because the shaft isn't tight like it should be, it turns too far. The position sensor senses that the wheel has turned too far, and operates the FF to correct it. Thus begins the oscillation.
The only thing I can suggest is to return it to the shop, if it's within the first year. If you're out of warranty with the shop, you may be able to get a replacement from Logitech themselves.