Well the issue is less that the guidance is bang-bang, but that it doesn't guide on a ballistic path. Instead it guides on a straight collision course, which is a problem when the line of sight is less steep than the bombs best achievable glide angle (which, owing to its small wings, isn't stellar to begin with). It wastes a lot of energy if it is allowed to guide immediately. The Paveway III dealt with both of these issues (it has proportional guidance and it guides onto a much more optimal flight path).