Forstner bit in a drill press. Worked for me.
yup. I use my dremel with a flat bottom round sanding stone
http://www.amazon.com/Dremel-Alumin...353014288&sr=8-17&keywords=dremel+oxide+stone
Both these methods work very well!
To clean out the knot hole, I'd suggest using a forstner bit with a smaller diameter than the original hole, than widening it with a dremel bit (Sanding drum or aluminum oxide stone) to the size you prefer.