Last question first, I wouldn't breach the powdercoat myself it can peel, obviously this should never happen, but what you are proposing would involve heat and or oil, so all bets are off.
You can use a mill to get in there and probably some kind of engraving rig. I wouldn't do it, the titanic mess up god would be looking over your shoulder. What if you get in there and find that the braze is uneved, and you have a gap between the lug and the tube, I'm not even thinking of structure, just a bubble, isn't going to be easy to heal. I;m no lug sculptor but I figure there has to be some better way to customize a bike.
Standard HSS is the best. Easy to sharpen wicked shapr and lasts well when run with proper speed an lubrication. A lot of better cutters are designed for modern work where there is flood collant etc... Of for weird materials.