After a minor setback, I took another crack (I hope not!) at the Z-axis mount. This time, with some decent success.

After final assembly, I tried it out and it can lower and RAISE the rotary tool - as shown in this short clip:

The stepper is running off 12V to give it enough torque. To be honest, I am not sure what the step / feed rate is right now as it is not calibrated. It is quite slow, however, I am ok with that. The first generation home built shopbot like CNC machine will have many glitches.

One other improvement I have made is to use 3/8 inch plastic plumbing pipe (risers, used for the last 12-24" of plumbing before a fixture like a sink or toilet) as spacers. I also changed the weight bearing plate to be wider and used 3 bolts instead of 2.