Dave, I really don't want to hijack Tim's thread with this subject. I will send you a private message with photos that explain it better. Anyone else who wants information can pm me and I will answer questions.
By the way, I have done a lot of non modeling work on my Sherline. That was not the intention when I bought it, but it has been very useful in doing other things. Example: rather than toss and old fan, I turned a new bushing for the motor and it is good to go!
I will say this again as it bears repeating. Buy the best tool you can. It is better to spend more on a good tool than buying a lesser quality tool, getting frustrated and then spending the money on the tool you should have bought in the first place. Every craftsman I know(including me) has learned this the hard way. I have spent far too much money on ok tools and then when I wanted to better work spent the money again on a good tool. It is actually cheaper in the long run to spend the money right the first time.
There are a couple of recent builds here on this kit. I just finished one. You are right this is an old and poor kit but it looks like you are off to a good start. You might want to look through a couple of the other builds that will give you a heads up on some of the issues others ran into. Mine is here http://www.modelcarsmag.com/forums/topic/113782-i-dont-do-hot-rods-well-maybe-i-do/ and I think that there is one under 54 panel also. Good luck, this was a real challenge.
They modified one I already owned, however they do sell them that way, but for a reason I do not fathom, it is not in the catalogue. You have to call and order it. They haven't had much call for them, but then, if no one knows you have it, then I wouldn't expect much in the way of sales. I strongly urged them to put it on the web site.
Ok, this is a follow up for Chris and Tim. I got the rotary table back from Sherline a couple of days ago and I am very pleased with there modifications. I can now get a bit within .5" of the top of a piece and almost flush with the end of the jaw with a collet used to hold the bit. The head contactling the Rotary table is still the limiting factor but it is much less of an issue. The first picture is the after and the second is before. You can clearly see the clearance difference.
You are on the right track but there are the same pitfalls. A "better" drill generally means more power and heavier duty, not closer tolerances. You can easily spend a couple of hundred dollars on a really nice drill, but why would you? You are half way to the cost of a used Sherline. Over the years I have learned that it is less expensive to spend the money for they right tool first time rather than spend less money but have to buy two or three tools before you realize that they just won't do the job. I will also add to that that I have tried to jury rig a tool to do something it was not intended to do and it works occasionally, but I would guess my success rate with that is quite low. I generally get frustrated and go get what I need. If you have a spouse involved in tool purchase(and I did) then I solved the issue when I explained it this way. "I could build a house with a Swiss army knife, but why would I want to?" Good Luck!
I use hand held tools on my Sherline all the time but they are very special tools and used in a special way. The tools are commonly used by watch and clock makers. They are called gravers and they are used on very small parts and with a specially made tool rest. They take very very small cuts but with practice, leave a highly polished surface. Here is a video of a graver being used. Notice how little material is being removed. https://www.youtube.com/watch?v=IVhdlfE0oDE Lets talk for a minute about the forces on tools when cutting. The forces on lathes is very very high at the point of a cut. Machines for table top machining are designed for these extreme forces and need to be very robust. Sherline uses tools made from 1/4" tool steel. They are held in solid blocks about 1.5 " square. When turning I try to keep the tool extended beyond the block to a minimum. If you extend the tool too much or try to take too much of a cut or run the machine at the wrong speed, the tool starts to vibrate. This is called chatter and leaves a very uneven surface. If you want to understand the forces involved, imagine taking a bar of tool steel less than 1/2" long and taking a cut of .010" deep by .020" wide and bending a quarter inch bar and making it vibrate. Those are the level of forces involved. To get another idea, look at a video of wood workers turning wood. Wood turning tools are typically 2 to 3 feet long for leverage and the steady rest is kept as close to the wood as possible. The leverage to work has to be huge. Typically in feet on one side of the fulcrum(steady rest) and fractions of an inch on the other side. Leverage and force are the typical reasons using a drill in a vice is almost unmanageable. You will also notice that the chuck in a lathe is a totally different animal from the Jacobs chuck in a drill. A drill has very loose tolerances in both the chuck and the bearings of the drill. Pieces in a drill do not run very true and have a wobble know as run out. That wobble makes digging in much more likely. Don't get me wrong. You can do some work with a drill and a file but to do the quality work that you want with model, you need the precision and quality of a machine made to do this type of work. Right tool for the job!
Carefull with that MDF! Some of that has some really nasty chemicals that come off when burned! Particularly cyanide and formaldehyde. The stuff that comes in from overseas can really get toxic in a hurry. Don't breath it if you can avoid it. A good resistance soldering unit can cut down on fumes quite a bit. Might be worth looking into if you are going to be doing this much soldering.