With this element size, the instabilities are not likely caused by a too coarse discretization, this is why the upwinding techniques do not help either. It's hard to determine the cause for the oscillations without actually seeing the model. Nevertheless I'd recommend to check for parameter contrasts, e.g., very high/very low hydraulic conductivities; furthermore, it would be good to check the time-stepping procedure. If you're applying large fixed time steps, you are most likely better off switching to automatic time stepping.