John Knox - Sheldon Expert who runs the Yahoo Sheldon Group wrote this about the tailstock key:
This key was not a "drive fit" in the body & you should be able to "jar" it & weasel it out with a needle nose pliers. If this is not fact in your case, remove the quill oil fitting which is directly above the key. With a properly ground semicircular chisel, thru the quill bore in the tailstock casting carefully remove what's left in the bore area so you have a near flat surface inside. Now pilot thru the lube fitting hole, locate the center of the key stem & (the size of this hole was I believe made with a "D" drill (.246"). Go in with like a 1/8" drill, pick up the center of the key & drill in 3/16" to 1/4" deep, now go to a 1/32" or 1/16 larger drill & force it a bit to see if you can make it "grab & spin" the key shank out without injuring the hole. Now turn a piece of 3/8"steel stock to a Dia. (.249 or .250"), cut it off & file it so you have a "T" that fits the 3/16" keyway in the spindle, make sure the top of the key does not rub the top of the keyway in the spindle, drop it into place & install spindle. (notice, quill & spindle have been used interchangeably here)
Mine was worn badly and I made a new one to replace the old one.