I would start off with some cheap indexable tool holders. 1/4" to 3/8" in size. You can get a set from Harbor Freight for $25.00 or there are a ton of sellers on E-Bay with them as well. Little Machine Shop has them too, but I would shop around for the best price.
I finally bought a "good" set of left and right tool holders from Grizzy for my 9X20 lathe and really like them. It cost me $150.00 for the two tool holders and a 10 pack of bits, but I'm really enjoying working with them. You don't need coolant with good carbide bits which helps keep down the mess in the shop.
Here are the ones from Harbor Freight.
http://www.harborfreight.com/cpi/cta...emnumber=39933
Good luck! Dale P.