Choosing the right alloy steel - and make a quill

Sounds like you've thought it out pretty well. Make the diameter of the quill a close sliding fit, somewhere around .001-.002 smaller than the bore. Check the bore in multiple locations. The anti-rotation slot on the bottom is not critical, just needs to be a free sliding fit. Trying to cut it with by "shaping" with carriage will be tedious at the least. I just tried to broach a 3/16 keyway in a gear recently using this method, I ended up moving it to the mill, cranking the knee up and down. The handwheel on the carriage did not provide enough mechanical advantage. Try to work out a mount perpendicular to the spindle with a 3/16 endmill in a collet (if such you have). Retention of the bronze nut is no big deal, two set-screws will be quite adequate.
 
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