Yup, I went ahead and used a spade bit and power drill, freehand. I figured I really had nothing to lose if things went badly - I'd already resigned myself to totally redoing the board.
But, as you can see, it turned out fine. Granted, doing this isn't for the faint-of-heart - and I took my time and vacuumed out bits regularly to keep track of my progress. My toggles are 1/2" square, so I used a 5/8" spade bit hoping that was large enough to clear. It mostly is, but it would have been even better if I'd had a slightly larger bit, which I don't.
The only downside (other than the high risk) is that the spade bit has two little "points" on each side of the blade which results in that "trough" you see right at the outer edge of the hole. You have to be really careful that those points don't come through the other side of the board. The upside is that I already had 1/4" holes drilled, and the center point of the spade bit used that for centering. So everything came out nice and straight.
Lest you think I'm getting a little cocky, I readily and heartily admit that I would not have even attempted this if this was plywood rather than masonite. Fortunately, the masonite behaves really well - provided you drill slowly and steadily.
With recesses made for all the toggles, I could start on the very long and tedious process of wiring everything up. What you see above are the toggles, and for each toggle two wires going down to the power bus, two wires going down to the LEDs and resistors, and two wires going up to the terminal strip (where the wires from the switch machines will come in and connect). Thanks to Pieter and Dick, these six toggles were already prewired for me - and it still took me a couple of evenings to even get this far. I have the remaining 7 toggles to wire up myself - which will slow things down further.
And all this just so I can have remote operation of a dozen turnouts with panel indicators. I shudder to think of what all is involved in building and wiring up a full CTC board and signalling system! At least I only have to do this once (I hope!)