Hold the phone, I think I just found a very simple way to get results 100x easier... and faster than retracing. (if this is covered earlier in this thread I missed it)
First, note the image size of desired result, once open in Silhouette, make the image as large as you can, THEN do your trace function. It should very easily determine the cutting lines, once traced, shrink the image down to the desired size and voila, the result should be a very accurate trace, even for the small stuff. See example:
The 5,000 When Lit... Graphic created and cleaned up in PS, then open in Cameo, I scale it roughly 4X of the final size, did the trace, took the result back down to the desired size of 1.5" and BOOM, did not even bother to retrace! It actually took longer to post this and "weed" the template than getting the trace accurate!
I'm a little more stoked than before now with these findings. Hope you can replicate the results!