lapping arbor

[TomG]

The lap in your set up will tend to follow the tapered bore rather than correct it's misalignment. It looks like this lapping operation is normally done on a vertical mill with the spindle being dead perpendicular to the table. I don't know if you've seen this site, but here's a guy demonstrating it:

Cannonball and the Beast

There is also a ton of other info on flywheel alignment on the site.

Tom