Thanks a ton everyone. These are some awsome advices. I think from now on what I'll concentrate on are:
1. Bending of knees. I guess I'll stand lower even from the starting position.
2. Glue my eyes more on the ball.
3. More compact backswing.
Re: groovedude. I wish I could do what you did. Actually I tried to hit the balls harder with more topspin so that I could "outpower" him, but I guess I'm simply not Nadal yet (who can hit balls that land on the baseline and instantly jumps up shoulder high). The anxiety often gives me more UE's. I think I need to overcome the return of flat balls first, so that I do not fear them when they come. From that point I'll try to add more pace to my own shots and dictate the play.