How to address this wear

Put a plastic lid on the shaft to protect the bearing, and emery cloth until you have a smooth surface all the way around. flush and oil your bearing, install your seal and give it a go. Seals are very forgiving, and you really have nothing to loose. You can always sleeve it if it doesn't work, and I've gotten away with it many times on different pieces of equipment. Mike
 
And, In Ca. it would not be easy to find the service, probably not so in Tx.
We used Pacific Hard Chrome in Richmond. I believe they're still around. I would definitely expect to find the service available in oil country.
 
I'm guessing that's cost prohibitive for this $1,400 lathe. Any idea what it'd cost to do that? The sealing surface is ~71mm diameter or ~2-3/4" (I'm saying about because I haven't done a precise measurement yet).
I would also suggest that you stop thinking of it as a $1400 lathe. That may be what you paid, but in reasonable condition it is probably worth more like $3k.
 
After looking again, the threaded portion of the shaft, where the chuck mounts, is smaller diameter than the section where the bearing and seal are. So, I'm going to go ahead and use a speedi sleeve. This is a home/hobby machine, so I doubt I'll ever wear that out or need to disassemble the headstock again (I'm going through everything now, refurbishing the machine). But, If I ever do, I'll either replace the speedi sleeve or possibly smooth/polish the area and if necessary, order a seal to fit. A buddy who has a company that builds oil field valves advised "custom" seals can be ordered for about $35 as long as outer and inner dimensions each match a size they offer - even if each is on a different seal.
 
Flip the seal around which will move the sealing surface. It will still work as designed theirs no pressure in the application. Polish the spindle with some 600 to smooth it out. And cover the bearing with some tape before anything.
Taking the spindle out might open a can of worms.
 
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