how do I make a circle?

Have you noticed the "sides" setting right under where you pick cyl/block/arch/etc? If you have, then the only way to get smoother is by making a displacement cylinder or using a model.

You could make a 360 degree arch with the wall width set to the radius of the circle (so if it's 1024x1024, set the wall width to 512) and set the sides to as many as you want - there's to limit to the number of sides an arch has afaik. Not sure how good this would be for optimising though.

also make sure you use a smooth texture group on the sides to get rid of most of the edges

Yeah, when using the cylinder block tool raise the number of sides, the more sides it has the smaller each face will be thus creating a smoother looking object. Its probably best to raise it in even number increments to try and keep the object from appearing lopsided when cut in half or reshaped. But this is all coming from a person new to map making himself XP so listen to the guys above me who have alot more experience.

You could also use displacements to create a cylinder... They are very smooth, cheap and quite use to achieve.

Create a normal box brush, select four sides (every side but the top and the bottom ) of it at once, create displacements out of them and press "Subdivide". Then you have to cut out the middle part of the tube.