mcmike,
First off we are so glade you found us here at the village, make sure you show off your work cause we all sure would love to see it. Now to the questions I can answer for you.
What kind of wood to use for fret work? Well the answer is what ever kind you want to use. I prefer to use 1/4" stock for my portraits, this can be plywood or solid, the choice is yours.
Blades...Mike is a great individual to get blades from and he knows his product and has great customer service. I believe he has on his site a which blade page that will answer most of your questions. I use, almost always, spiral blades and since I dont do much in the way of stack cutting I have never really paid much attention to blade issue like alot of folks have, if it is small enough to get the detail I want I use it (I know not really the right way to do it)
I have always wanted to make a guitar for my son and would love to hear more about how you go about doing it.