Selecting the faces and hitting smooth should have worked or did you get an error?

Selecting the faces, then Polygons -> Smooth works for me.

Try to add some polys in spots where the shirt bunches up, like a real one. Such as down by the waist, and if he bends his arm by the sleeve/shoulder. Take a look in the mirror of yourself just...

Would this help?
http://www.wowcomics.com/