The Sherline stuff really is too small to do much beyond models.
I'm using the Grizzly mini-mill and a Harbor Freight mini-lathe, and they are quite capable of making gun parts and tools. I got them both for well under $1000.
This is a partial list of some things I've made on my equipment recently:
Front accessory rail for Robarms M96
Picatinny scope mount for M96
replacement firing pin for Baby Eagle pistol
set of brass & nylon punches
primer pocket chamfering tool for reloading
Die set for flaring rivets (for use in Kydex holster fabrication)
1911 beavertail grinding jig
1911 slide lapping tool
1911 plunger tube crimping tool
drill bit for making 1911 grips
1911 disassembly tool
carbon scraper tool for HK P7 gas tube
I have a page that shows my mill & lathe setup:
www.geocities.com/kemays. Hopefully it will help you decide whether these machines will fit your needs.