NativeCraft,
The one I use mostly is the #194 1/8" high speed cutter. The bit is shaped like a small cylinder. It seems to work really well. They also make one about like it out of tungston carbide, and it would work well, also. I just don't like dealing with the tiny, sharp shavings from it. Definitely need to wear good gloves and safety glasses if you do.
To shape the handle, I usually rough it out on the bandsaw, then go to a 1" belt sander and a dremel with a drum sanding bit in it. It could all be done with the dremel, if the other tools aren't available.
Once it is shaped, I finish sand down to 220 or 300 grit sandpaper, then usually use thin CA glue(super glue) as the finish.