Thanks! So there's a workaround for that!
The way Painter works is to convert height to normals at the very end. So if you use Pixel8r on a heightmap, it's internally of course still whatever your project resolution is and you get stairsteps when it converts to the full res normal.
What you need to do is convert height to normals yourself, making sure to black out the heightmap afterwards, and use Pixel8r on the normals. That'll get you the right look.