Steve:
Runout of 1/4" on that drill press is crazy - it should be within a few thousandths or not too much more, unless something is really buggered. My 50 year old 14" Delta shows only a few thousandths, although I'll admit it does have a new Albrecht chuck.
Get a steel dowel pin, say 1/2" diameter and 4" long. Chuck it in the chuck and measure the runout. Now take a hammer and hit it on the high side. Check the runout and, if it hasn't changed, hit it again with a bigger hammer. Sounds brutal, I know, but it should correct the runout problem. Check the archives on the OWWM site for some additional discussions on this.
If the quill travel on the mill drill is OK for you that's fine. Forget the knee mill.
The smaller surface grinders are cheap used. They may not have their original accuracy, but you don't really need it. I got the Delta for a $99 eBay bid. They usually go for more, but for $500 max you should be able to get exactly what you need. And it's nice to be able to work with hardened steel, and not just the annealed stuff.
John Martin