It looks like you have an Outside Offset that defines the region for the ‘Inner Frame Pocket’. It’s big enough that it takes a long time for the V Bit to clear it, but not big enough for your 1/8" Pocket Tool to clear it.
So, either make that offset bigger (so the 1/8" tool can do most of the work), or make it smaller (so the V Bit doesn’t have to do as much work.
If my calculations are right, then the minimum outside offset you need is .0722 inches, based on a 60 deg bit and a cut depth of .125 inches.
Rather than faffing with that, I think just using an offset like .3 would be easier, and let the 1/8" bit do the work.
You need to double the offset you think you need, since you want the flat of the valley to be at least 1/8". Again, if my calculations are correct, you need an offset of at least 0.269 to have enough room for the 1/8" bit to fit.