So before all these replies about fillers I did some searching around and it seems lots of guys in the R/C airplane world use common lightweight wall spackle on balsa with good results. So I found some drywall joint compound in my basement. I know it's not exactly the same but it must be close right?
I should have known better! There's a lot of water content in joint compound and after I spread a bit on my nose cone the grain raised a lot under the mud. D'oh! Shouldn't have done that. Luckily I wiped/sanded most of it off and after a few hours I was able to sand the raised grain back to normal.
This is great advice! I should have applied filler before removing the dowel so I could do a final sanding of the filler on the lathe. Next time for sure!
For now I think I'm done with body work. There's still a few divots in the wood but they're small and I'm not gonna worry about it. I'm not going for a super nice finish for this project.