Runout at the rotor button on mine is almost imperceptible, maybe 1/32 at most. It's hard for me to tell just by wiggling, and I don't have a dial gauge to check it.

There are really only a couple of things that can move in the shaft system: the shaft in the main bearings and the hub on the shaft, but the heli itself flexes, too. are you sure the play you're seeing is all in the shaft system? If it actually does move 1/8" I'd be trying to find out why.

[Edit] Tex is on the money with checking the hub screw, btw. Mine was loose when I got it, come to think.