Hey thanks for the response... I appreciate that!
I pulled the spindle, mounted it to my table and setup indicators on both the inner taper and outer housing so that I could adjust the preload on the top bearings. I noticed that the ground washer between the c-nut and the bearing was no where near flat so I carefully lapped it on my surface plate and then lightly lapped the c-nuts before attempting to adjust the preload.
I was able to get the runout down to within .0005 with a finger tightening of the nuts. I then mounted the spindle back in the head and tested the runout and it was down to within .0003". The play or slop I was experiencing has also disappeared so it looks like we're back in business.
He whole endeavor took less than 2 hours to complete. Needless to say I am now satisfied.