How can I play the harp well?

Obviously the first thing you want to do is memorize the song. You'll want to know when to expect the fast parts and whatnot to keep it as smooth as possible.

To strum the harp, you're turning the Wiimote left and right more than you're waving your arm left and right. So if it is pointed to the left, it will be playing at the lower strings. Pointed to the right it would be playing the higher strings.

When you're strumming the harp with Kina, you want to be going at a speed where you play every note decently spaced out for each time they wave. If you were to look at their waves and your strums position over time, it should look like this:

When the fast parts come up, it's a lot more lenient. You don't necessarily have to be evenly spaced out like the normal parts, you just want to finish before the next wave comes.

The freestyle part, I think anything goes. I always played through them just random stuff.

If you still need more pointers, I recorded myself playing through it.

I was having as much trouble as you were. My issue was that the motion sensor treats distance inconsistently, so if I moved my arm in a wide arc to the right, and left it there, even the slightest leftward movement (my arm settling) would end up with Link moving his arm halfway across the harp to the left again, before I was ready and before the next wave.

Once I found the problem, the solution was easy. A wide, fast arc as soon as the audience waves, then keep slowly moving in the same direction until the audience reverses direction, then a wide fast arc in the other direction and again, keep slowly moving in that direction. Using fast arcs followed by slow movement also makes the fast-wave parts a breeze (although that was partially due to the fact that I'd failed so many times I'd completely memorized the song).

I realize this won't help for everyone, but I'm willing to bet that the WiiMotionPlus interpreting small movements equally as well as large ones is a fairly common cause.