Creeking and knocking headset - how to fix?

[Llama]

I picked up a cheap(ish) schwinn empire single speed, problem is the headset knocks (still turns fine just over every bump it knocks). Its a quill headset and it looks like the previous owner tried to tighten it up as the allen head is chewed up.

Anyhow do I just need to replace the quill headset with something like:
http://www.wiggle.co.uk/deda-quill-stem-adapter/

Or is there likely to be more to do?

Here's some pictures:

Thanks!

 

[DRM]

If. I remember correctly, the bolt in the top of the stem pulls up a wedge in the steerer tube to secure the stem in the correct position ie straight, the big nut at the bottom pulls the steerer up to remove bearing play, apply the front brake and rock the bike backwards and forwards to check for play, it's loose nip up the nut, however it may need stripping and greasing.

 

[raleighnut]

It is actually the 2 nuts that adjust the headset, the top one is a locknut the bottom one adjusts the bearing, I'd be tempted strip it down to the bearings and check them for wear then regrease em, not just adjust em.
EDIT- the bottom one doesn't look like a nut but it is.

 

[Globalti]

Understand that, unlike a modern headset the quill is completely separate from the steerer. You can tap that hex bolt down to free the wedge and remove the stem and the steerer will stay in place held by its top and bottom bearings. Adjust the play out of the steerer with the top race and its locknut then set the stem to the height you prefer and lock the wedge with the long hex bolt.

It's a different engineering solution altogether.

Previous owner may have had no experience of old headsets and tried to adjust the bearings by tightening the hex bolt.

In your pics it looks as if the wedge has dropped off the stem because you've undone the hex bolt too far. Turn the bike upside down and tap it out.

Grease everything lightly before reassembly to prevent the wedge from sticking in place.

 

[Llama]

Thanks very much for your replies, I have as suggested removed the wedge from the frame. I cleaned it all up and re-greased it and it seems to have done the trick,