That's more than optimistic.Ideally, I would like the machine to be able mill aluminium in 3D shapes with an accuracy of +/-0.001" which I know is optimistic
Steel is far superior. Consider that a similarly sized industrial machine designed for the same intent would weight thousands of pounds and probably cost a few hundred thousand dollars.
Design 1 is usually stronger and more rigid. Design 2 gives you better access to your work.
I'd probably put the ballscrews on the outside.
Rails on top is the preferred method. Especially with a lowered bed, where they are not in the way.
They are typically only mounted on the side with a flat table router, where they'd get in the way if they were on top.