Simon,
I'm not sure where you're located, but I got my lathe from Penn State Industries (PSI). They have complete starter packages as well as just the lathe by itself. Their customer service is terrific and stuff ships when they say it will. I purchased mine as a starter kit. Came with lathe, three chisels, shellawax, adhesive, barrell trimmer, and enough pen blanks and kits to make 5 complete pen and pencil sets. This was a basic starter kit, you can get some with even more stuff depending on your budget. You can check them out at http://www.pennstateind.com/
I'm going to have to think on this. The biggest problem I see is not so much being able to generate the heat, but making sure the applicator doesn't catch on an exposed edge and rip it off the cutting. I could put a large spindle on the lathe between centers but what material to use on the spindle to act as a buff? On less delicate fretwork pieces I would think a buff on a drill would work.
Barry