Tim, I can't answer all your questions but can give one datapoint.
I have the Proxxon auxiliary spindle that Tormach sells. I did replace the nose bearing with a hybrid ceramic bearing from a shop in Australia.
The attached photo is of some small model railroad wheels I machined last year. The pockets between the spokes, I machined with a .009" 2-flute carbide endmill. On the four large pockets, I did rough with a .020" endmill, but the six small pockets were entirely the work of the .009". The wheels are nickel silver (a little tougher than typical brass) and I ran the .009" endmill at 20,000 rpm, 1.3 ipm feed and .002" depth per pass. The depth of that operation was .040" (i.e. 20 passes). I did use flood coolant.
The endmill survived machining two wheels, then I snapped it off attempting to re-measure the length with my dial height gauge...
According to Machinist Mate software, the .009" 2-flute should be turning 170,000 rpm in brass with a feed of 10.9 ipm. I just ratioed the feed down to suit my 20,000rpm spindle speed. With 40krpm you'd be able to double the feed.
There's some more description of the machining in this thread here on the Zone.
Randy