Perhaps you can face the top of the compound as much as you dare, then abandon the toolpost stud hole in favor of a T-slot like most other lathes (assuming you can do this with your mill) you'd be in business. By cutting the T-slot as far toward the front edge of the compound as practicable, you can hang the tool holder over the side so it no longer rests on the compound. You'll have to use the compound yaw a lot more than you would if your tool post had "normal" height, but that's not too bad with the right selection of tools.
As it is, you will not be able to use a cut-off tool on that lathe. There are few alternatives for that little bugaboo.