I have powder sugar lumps in my fondant. I sifted it and they seem to be worse. I knead and knead and they don't go away. Any ideas on how to not have lumps in my fondant?

Try adding some glycerine or a little bit of shortening when you knead.

I've read that some people add less powder sugar. The rec. I use calls for 2lbs of powder sugar. Can I add less?

Yes, you can add less. I only what the fondant tells me it needs.

I stopped getting lumps when I quit overheating the marshmallows. I make sure to stir the mm quite a bit before I start adding the powdered sugar. Mine didn't seem to specifically be powdered sugar lumps, though.

AThis article here says to add alittle water a drop at a time.

whatscookingamerica.net/PegW/MakingFondantQA.htm

AThe article also says to let the fondant rest overnight and that might help dissolve some of the lumps.