Hi Bruce,
If you can achieve .002" run out it sure runs a lot smoother.When I looked at mine I chose to modify the collet to fit the grinder body both on concentrically and on the diameter as good as I could, as you often need to have the tool sticking out a fair distance and you are reliant totally on the collet. Have you checked the bore diameter of your collet, mine had two sizes in it. Making up the mandrel allowed me to true up the collet to achieve a better fit.
Bob