You can turn your tool post to get tool relief for some cutting operations. Carbide bits may have relief made into them, positive, neutral, or negative, or the bit holder has it built into it to set insert as "needed" for it.
What are the inserts you have for? Alumumin, cast iron, steel, hard steel, etc., the rake/relief angles are different. The carbide type/make up/coating are generally different too.
Generally I would get an idea of lathe ops and bits,machining, before working on hardened materials.
Please keep in mind that the materials heat up with metal removal and will change measurement when cool.
I am susbect of the metal colouring if it is happening/appears to be happening when machining the shank from the old drill press, was it coloured this way to start with or did it happen while machining? If it is happening while machining, tool bits are rubbing, and or, removed material is not carrying away heat fast enough.
" Chips" are controlled by depth of cut, and the speed of advancement of tool bit and rpm. This is not going into tool bit materials, coatings, rakes and reliefs, what can be a puzzleing mix.
Some of this is also above by others.