I would opt for an actual key if you are using the keyway to resist having the R8 collet rturn while tightening/loosening a nut. The Pin will work well for locating but the contact area is really only a short line. A key will have contact on an entire surface. If you do decide to use a pin, locate it at a different position than the pin in the mill so any distortion that occurs won't affect the fit in the mill. Also avoid the ground cylindrical e4nd of the collet.
As to how to make a keyway in a block, I think that I would mill a slot from the outside into the interior of the block and insert a key flush with the outside and protruding appropriately on the interior. The key can be locked in with a pin or set screw.
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