In my experimenting, jumping analog readings are caused by...
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General digital noise. Cured by adding a 0.1 uF capacitor across VCC and GND as close to the processor as possible. Already present on Arduino.
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General digital noise. Cured by adding a capacitor from AREF to GND and using the appropriate analog reference setting
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General digital noise. Cured by adding filtering to the analog input.
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CPU digital noise. Cured by using Noise Reduction Mode.
I've only had problems with #4 on ATtiny processors or when reading the internal temperature sensor. For the rest, the Atmel documentation is a good source of information and Grumpy_Mike has graciously written about filtering. If you still have problems after adding filtering then it's time to add Noise Reduction Mode.
However, Noise Reduction Mode certainly won't hurt anything.