CathyB -
I'm making my yogurt with a standard (not ultra) pasteurized, 1% milk without any problems. I've found that two things tend to affect the thickness and the amount of time of my yogurt. For some reason, my yogurt has a harder time setting on colder, drizzly days. It works, but it just takes longer. I'm not sure why that would be since it's kept in the controlled environment of the personal cooler. Also, the freshness and type of the starter is important.
I've tried probably 5 or 6 different starters and the hands-down favorite is the French Creamline yogurt by Trader Joe's. It sets up well, thickly, and is a really smooth tasting yogurt. The worst was the one that I bought at the health food store that had 8 live cultures. It set up thin and sour. The French Creamline yogurt tastes closer to a sweet sour cream than some of the other starters. It makes really, really tasty yogurt.
I don't use MissP's recipe exactly. I simply dump my milk into my pan to the level that fits best. It turns out to be closer to 6 - 7 cups of milk. I then add about a 1/2 cup of the dry milk. When it comes time to stir in the yogurt, I use 3 *heaping* tablespoons of the yogurt starter.
Other than a couple of instances when I was adding other stir-ins, my yogurt has turned out fine with the 1%. Don't give up just yet on making it work for you.