Any thing that will remove the material is ok, the main thing is to not go below .220 in dia and DO NOT get the steel hot! If any part of the crank turns straw colored or blue while cutting, you can bet Rog's last dollar, that the crank will break in flight. (loss of temper/hardness of the crank, the metal turning colors means you are too late)
This mod to the engine will give an incredible increase in rpm all by it's self. If I were to use a cut off wheel in a dremel, I would chuck the crank in a drill press, lathe, or cordless drill, low rpm, and use alot of water and take your time so you dont heat it up.
The idea is weight removal and surface area relief for friction in the case. Make sure you leave about .150 at the front for bearing and make sure you dont relieve too much towards the opening for the carb, I mark the crank while in the case, through the ventrui, I draw a line on the crank where the front edge of the venturi window is. Take out the crank and stay .020 or so in front of your mark so you dont open the relief into the venturi passage.