It sounds like you're not able to hold that thin sheet of aluminum down firmly enough to get a good cut. With an upcut bit, there's a tendency for the material to be pulled up a little from the table, and then dropped as the chip breaks. The fact that you're getting much better results on a piece of tube (which wouldn't have this issue) makes me think this is a large part of your problem. You could try rigging a vacuum pod for these parts, or use some carpet tape underneath to stick it down to the table (or a sub-plate that's easier to stick to). You might try using your mister as well, since aluminum usually cuts a lot better with some lubrication. Try a piece cut that way to see if you really can't clean the residue off well enough to weld it; I've never heard of this being a big issue. And usually, you want to spin a lot faster for engraving with small pointed tools; I don't know why they told you to slow your spindle down that much. For the smallest letters, I'd be tempted to run flat out at 24k RPM.
To zero the tool, get a pack of ZigZag cigarette papers, and hold one under the tool as you move down by thousandths, moving the paper a little. When it pins the paper, you should be .001" above the surface.