If anyone is having the same problem I did I put the answer below from the company i bought my exhaust from:
"surging is a lean condition.If the bike lays down at high rpm that is also a lean condition. We have dynoed a brand new 08 with 300 miles on it and that fuel system was all stock and pulled right up to redline , making 170.1 hp. When you added the K+N filter you also leaned it out even more. Put the stock aircleaner back in and I'll bet the performance picks up. That will document whether it is indeed lean or not. Any time you change an exhaust system out for a less restrictive system an engine generally has different fuel requirements, usually a higher level as hp is a product of a more dense fuel/air ratio."
I played with the settings on my PC III and raised the fuel on the low, mid, and high and the bike is running much, much smoother. I am going to take it to a motorcycle shop this week and have a new custom map made for it so that it is perfect.
I changed the spark plugs a few days ago and that was not the problem. Checked all vacuum lines and those were fine. If you run a PC on your bike and are unsure if thats the problem with your bike always consider that to be a good reason your bike is surging or sputtering.