I grind the circlip groove into the sleeve gear, in the lathe, using a tool post mounted grinding spindle fitted with a small cutting disc from a dremel kit. Works a treat. I,ve had to do this on a few sleeve gears ranging from a 1956 ES2 to a late Mk2a.
If you do replace the bushings, DON'T hone them out. If they are tight on the mainshaft after fitting you need to ream them out. Honing is actually circular lapping using an abrasive stone. you do not want any particles of abrasive stone to get embedded in the bush. Reaming is a cutting process so no abrasive used.
Using bushings from RGM or AN i have had no problem with tight bushes.
Photo of circlip groove ground into sleeve gear