I suspect things have changed in the quality control dept. at Sherline since Joe died. I never had an issue with having to break in a gear or having them jump out of engagement or lock up or anything other than work right. Too bad.
When you set up your gear train, be sure to slip a piece of paper between the gears before you lock it down, then pull the paper out. This gives you the ~0.003" clearance you require. Use lubrication sparingly to avoid a mess; almost any oil will do for this and I usually use a single drop of oil to lube the whole train.
I thought I would tell you guys how I stage my threading passes - might help. My first pass is a 0.001" deep scratch pass, then check with a thread pitch gauge to be sure the pattern is right. If it is, then I take 0.002" deep cuts until I reach a total depth of 0.010". From this point on, I take only 0.001" deep cuts until I am very close to being done. On every fourth pass or so I make a pass without adjusting the depth of cut; this is a spring pass. This spring pass helps to be sure both flanks of the thread are even because there is a lot of flank contact with the tool and defection can be an issue on thinner work pieces.
I always calculate an estimate of total thread depth so I know when to start checking for fits. I use the formula from Darrell Holland: .750/TPI = approximate thread depth. I start checking for fits about 0.005" before I hit the calculated depth. Early on, I used the nut I was trying to fit but it is better to use either the three wire method or a thread micrometer - much more precise. Estimating your total depth of cut for metric threads can be a major pain because they use pitch, not TPI. To get around that, use the attached chart from Newman Tools to convert the pitch to TPI and plug it into the Holland formula above.
Remember that if you need to produce a class 3 fit, your blank must be sized correctly. To do that, I am attaching a chart that will give you all the information you require to cut proper thread fits below. To use the chart, find the thread you're trying to cut, then determine the fit you want - 2a, 3a, whatever. Then for that class of fit, find the major diameter; this will be a range. Turn your work piece so the OD falls inside this range. Then, when you turn the thread, use a thread mic or 3-wire calculation to hit the Pitch Diameter range in the chart. If you get both of these right, your thread will be in the class of fit you chose. If this is not clear, let me know.
With regard to cutting in with the cross slide vs the compound, guys cut with the cross slide every day and many prefer it this way. If your tool geometry is precise and the tool is sharp, this method works every bit as well and cuts perfect threads. Yeah, you're cutting on both flanks of the tool but you're taking very small cuts so it isn't a big deal. Truth be told, when I need to cut a class 3 metric thread I prefer to do it on the Sherline lathe instead of my Emco Super 11 because it is faster and easier, believe it or not.
I have cut many, many threads on the Sherline lathe over the 25+ years I've owned it and most of those threads have been cut to tight tolerances, not because it was necessary but because I can. So can you. I suggest you let go of the idea that cutting with the cross slide is an inferior way to cut threads - in my experience, it is not. If your thread form is a problem, look to your lathe tool or technique instead.