It should not be like that indeed. If you load the default time of day level if should be smooth for instance (unless there is a bug somewhere)
My guess is that you are using a sky dome material and using the node **SkyAtmosphereAerialPerspective **to get the sky luminance? That is the low resolution texture aerial perspective texture meant to be sample on transparent object (it also has grayscale transmittance in the a component). For the higher resolution sky luminance you should use SkyAtmosphereViewLuminance. The resolution of those luts can also be tweaked with cvars per project/platrofm if needed (for instance if useing volumetric shadow within the atmosphere)
Also to get the sharp sun disk form skydome material graph, use SkyAtmosphereLightDiskLuminance. It is all in the online documentation , or you can also use Material’/Engine/EngineSky/M_SkyTimeOfDay.M_SkyTimeOfDay’ as an example to follow.
I hope that will solve your issue.
If you think anything is missing from the documentation then please send suggestions: we try to be exhaustive but it is also possible that we have missed some details in the process.