How much better are they really?

So, in the last couple of months I've experienced some sustained success and gained some confidence in my poker abilities. I've always known I was better than the average tourist playing 1/2 NL HoldEm, that's why I moved to Vegas; I don't have to instantly be the best player in town, I just have to be able to find tables where I can identify players worse than myself. My plan for my first year here was to play the lowest stakes, hone my skills, build my bankroll, see where I'm at in a year. It's been a little over a year, my reads have gotten better, my bankroll is in good shape, so I've been contemplating my next step. Moving up probably means branching out to play more at other casinos; right now I play primarily at the MGM Grand, which is probably the best room around for 1/2 NLHE, and where I've made the most friends, but has a more limited 2/5 NLHE selection. Some people have asked me why I don't play 2/5, some people have told me not to move up because "[I'm] a 1/2 player", whatever that means.

A couple of recent events added something else to think about in my quest to improve. Last night I watched a guy fold KK face up against what turned out to be only AK suited. Stack sizes being what they were, and knowing what was known about the player making the re-raise, there is no possible way I would fold pocket kings in that situation. Then today, I'm reading an article about the 3 largest pots ever played in online poker, which all happened at the same table, in quick succession. In one of them, in $500/$1000 NLHE game, a $678,000 pot was built pre-flop when pocket aces and pocket kings got it all-in. In this situation, the stakes were higher, the stacks were deeper and the players involved are some of the best in the world, and yet all the action occurred pre-flop and the second best hand couldn't get away from it. I don't know the exact sequence of the action, but with deeper stacks and supposedly better players, it would seem that there might have been enough information available to deduce that KK was behind in this case.

There have been a couple of cases where the little voice told me my kings were up against aces and had I listened, I might have gotten away and saved myself significant (to me) money, but more often, the stacks involved dictate the action. Reading about situations where top pros make misreads for that much money make me wonder just how much separates us, other than the stakes. And if that is the main difference, how gradual an increase in stakes do I need to restrict myself to?