I don't think you are missing or gaining steps. You seem to have done just about every check in the book, and got everything sorted. Dont worry about the number of steps per inch - 35 in 20,000 is a tiny percentage. I am not sure whether you are talking about a lathe or miller, when you talk about the diameter being 1/10th inch out.
I think your problem, with respect, is that you are just not getting zeroed properly at the start.
With a lathe, I take a facing cut, and zero the Z axis. I then move the tool along the work a little and jog the tool until the tip just touches the work. I then measure the diameter and set the X axis to half of that ( I am in radius mode).
With the miller, touching the work in both axis is fine, but you must then set the axis to the diameter of the tool, not to zero, then bring the tip down and touch the top of the work to set z (usually to 0). If you are using a 1/4 inch cutter this could account for the problem.
Make sure on your tool table that any reference to diameters and lengths are erased and none of the check boxes are checked for tool offsets.
I cannot see that your computer can be at fault, because if everything is OK while the thing is running around, then it is not going to change just because you are cutting something - how does the computer know
If you are doing what I have said, then I apologise - and have no idea where the fault lies.