Ok, so on the bearings. I used the ones I found recommended.. Timken 32007 bearings. Not the absolute highest quality money can buy, but from a reputable company as I understood it. I did clean them out as best as I was able prior to greasing and installing.
I used the “Red Tacky” #2 EP grease packed to my best guess of 50%, as recommended in the "Rebuilding the asian 9x20 Lathe" that originated on the yahoo group, though I think I still over packed it because grease has been squeezing out of the bearing guard.
Now, I mentioned my method of installing was likely an issue. To get the front (chuck side) all the way to the end, I had to take a copper (soft) rod against the inner diameter of the bearing and hammer it down bit by bit. This took a lot of patience and many many hours. This was also how I got the bearing races into place on the headstock, as I had already figured out that it was way out of alignment. It also occurs to me NOW that I could probably have rented some kind of puller from the local NAPA autoparts store that would have worked better and with less frustration. How I put on the rear one(both bearings were insanely tight to put on): I basically used the preload nut with a couple washers to apply pressure against the bearing and cranked it down until the nut bottomed out, then took it off and put more spacers against the bearing and repeated the process. The reason I suspect I may have damaged the bearings, is that I might have way over tightened them making sure that the rear bearing was fully seated.
Measuring runout on the lip of the spindle... I don't recall for sure right now (I'm at work), but I -think- it was under half of one thou.
For setting the preload, I basically had already gotten it super tight to where it was really stiff to turn, backed off the tension and let it run for 20-30min to warm up, then tried to follow the procedure in the Rebuilding book that I mentioned:
No matter how loose I set the preload, it wouldn't spin 1.5 times.. even with the spindle loose enough to rattle back and forth, but I think that may be due to having too much grease. It feels nice and smooth now, though, with no movement of the spindle that I can detect.
Thank you for taking the time to comment and give advice, I'll continue to update this thread as I make progress or get stuck.