You can build an accurate spindle speed sensor for less than $10.
Mach3 uses a single pulse per revolution to determine speed and index for threading - this works but doesn't deal well with fluctuations in rpm (inevitable), meaning threads may not be as clean as possible.
LinuxCNC uses a spindle index (one pulse per revolution) and a spindle phase A (many pulses per revolution - I used 60). For this you need two sensors. Fortunately two optical sensors can be bought very cheaply from ebay (search for "slotted optical switch"). You can also use a quadrature encoder which uses two phases as well as an index.
It cost me US$5.88 (including shipping) for two optical sensors on PCBs with a voltage input of 3.3-12V. The main PCB has a power LED (red) and a green LED for each sensor that indicate the state - making it easy to see when it's working. My version has two trimpots that adjust the sensitivity.
I lasercut a slotted disk in 3mm MDF. The disk has 60 equal slots for spindle phase A. One of these slots is longer and is the spindle index. The disk is a push fit on the existing gear on the spindle (used for leadscrew drive on stock lathe)
My conversion is based on a Titan TL180V Minilathe from Titan Machinery, a machine tool importer in Australia. In stock form the lathe has ~400mm between centres, 65mm cross slide travel, 110mm swing over saddle, and 180mm swing over bed.
I'm using Probotix Probostep drivers + 280ozin steppers. I had this 3 axis left over from an upgrade to my CNC router. If I had my time over I'd go with a g540 - it does have two suplus axes, but has many features and easy wiring that make it well worth it. However, I can't fault the service from Probotix. I managed to fry a breakout board by shorting 5V with the USB power plugged in - Probotix sent me a new board, free!, when I emailed them about the problem.
I wanted a conversion that didn't increase the footprint of the lathe (much) but maximised the travel. I wanted an X axis that increased the travel to allow gang tooling.
I'm using 1/2" 6TPI ACME thread. It's very hard to find ACME thread in Australia. Fortunately there is a good bolt supplier close by that can get it. It cost me $50 for enough thread to do the lathe twice over. I made nuts out of plastic.
Simon C has done a very nice conversion, thread at cnczone.com. He's done a neat job with stepper covers, new coolant tray.
blades started with neat solutions using the stock screws and then built on it from there. Thread at cnczone.com
5Bears (a great site on CNC machine building) has a good technique for turning down screws. It involves making a tight fitting collar to allow the screw to be accurately indicated mounted in a four jaw chuck. This is to ensure concentricity.
Tooling is central to performance of any lathe.
The best investment for a lathe is a quick change tool post (QCTP), and could be regarded as essential for a CNC lathe.
I'm using the 0XA QCTP from Little Machine Shop. It's designed specifically for small lathes and is a wedge type QCTP. It cost me $130 plus shipping but worth every penny. It comes with the tool post plus 5 holders - you'll want a few more, which can be bought for not too much (though a few certainly adds up) or made relatively easy if you have a mill. I'd heavily suggest getting the 2MT (Morse Taper 2) holder - it will allow you to mount drill chucks / collet chucks easily and therefore do peck drilling (no need to use the tailstock).
The 0XA QCTP was a simple bolt on for my 7x14 - just remove the old toolpost and stud and put on the new stud and toolpost.
Using standardised indexable tooling has a number of advantages on a CNC lathe. Firstly you can replace the cutting edge without having to redo offsets / tool information, and the geometry is always the same. Secondly most CAM programs have libraries of inserts built in, so you can easily have your tools set up in CAM and therefore have appropriate tool paths and avoid clashes with the workpiece etc.