It does sound like your rubber donuts/cones are old and squashed? Have they been replaced at some stage? They will make the ride bouncy as they don't have as much suspension travel. Old shocks will contribute to the bouncing too. I have recently replaced the cones and shocks and the improvement in ride quality is significant. 12 inch wheels mean you have less rubber too, so they will contribute slightly...
I've got the KYB gas-a-just shocks that Matt mentioned, they are a huge improvement over the old ones I had before.
The ride height on the cars originally was quite high, look at some of the cars in the brochure section e.g.
http://www.ausmini.com/forums/viewtopic ... 32&t=88199