I would be very curious to hear what you find in terms of runout in your spindle.

I posed this same question to several senior mechanical engineers where I work, and their answer was unanimous; better bearings will likely yield a similar result. It is a fundamental design flaw. To get near zero runout, you need to use pre-loaded, angular contact bearings. This would of course, require changing the housing and rotor to accommodate a setup like this.

I guess I'll just have to start saving for that water cooled spindle I have been lusting after!

Jon