A lot of machines I see with small work envelopes have moving tables. With the right components, and you have the right tools to make them, you should get very good accuracy, way more than .01! Look at some of the moving table builds here, like RomanLini's, PEU's, DonFrambach's, etc... FreshMint is making one now that looks good as well. Check out MicroCarve's machines as well...
I think you might want to consider a larger working area; why limit yourself to such a small envelope?