"J.B. Bobbitt" wrote in
:

snip
3. I had planned on finishing the boards with shellac before I
drilled the holes, but the tearout problem has me re-thinking that.
But, I don't like the prospect of finishing the boards after drilling
the peg holes, because the shellac will fill the holes (I'm pretty
sure it will, anyhow), and I'd have to re-drill the holes afterwards,
again without a template.

Well, if it were my project, I'd use the bit in some sort of a hand chuck,
and simply twist the bit a couple of times, by hand, in each hole. A
nearby vacuum hose/port would remove the scrapings. Little power is needed
to scrape recently applied shellac.

And the beauty is, that if you screw up the shellac, a new surface coat is
easy to apply/repair/replace.

No solutions offered to your other questions, however. Good luck.

Patriarch