I took my old carrier bearings to a local machine shop and asked them to radius the ID to make set-up bearings for use in shimming up a new ring and pinion.
He said the bearing metal would be way too hard to hone with any of his tooling, and that he had never heard of using set-up bearings.
Has anyone here used set-up bearings, and more to the point, made them?

DO NOT! use the old bearings for set-up bearings. I made this mistake on the first gear set-up I ever did and it was not good. The shimms were all wrong when the new bearings went on. Buy extra new bearings and races, use a heavy duty dremel or an air powered end-grinder with a round stone and just keep going aroung the inside in even circles until they slide on and off easy.

Yes. I used a dremel tool with the carbide tip to get in there and then came behind with a course sanding drum to smooth it out. It took About 1 hour to do my two carrier bearings and my pinion race bearing, but well worth it. Or you can spend about $60-$80 and just buy a set of set-ups. I believe Yukon sells em.

Carbide cutter ($10 bolt supply store) and a Die Grinder ($9 HF)

I've had them turned on a Lathe, They are correct it takes some good tooling and coolant, you have to be set up to cut hard metals. It's easier and just as good to use the previously mentioned methods. Take your time.

http://store.ambtools.com/prodimg/LIS10000.jpg

I tried initially doing it with a brake hone. They do not remove enough metal fast enough. However, use the above described methods, and then use the brake hone to smooth as a final step.
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I made some a few years ago for my Dana 60. I bought 2 carrier bearings and 1 inner pinion race from the local parts store. I then used an air powered die grinder with a bur bit to oversize the inside of the bearings, and a plain ole' 4 1/2" grinder with a flapper wheel on the outside of the pinion race. I've already used them 3 times since I made em'. Money and time well spent.

I've had them turned on a Lathe, They are correct it takes some good tooling and coolant, you have to be set up to cut hard metals.

Carbide with no coolant.

A small cyl. hone will also work or find a machine shop that has a hone.

I used a die grinder and sanding drum. I think a small cylinder hone wrapped in sand paper may work better though.