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I can only answer one of your questions, rubbed in jewels are only in the plates of a watch, this does not refer to reducing their size, just the fitting type.
Your second question, I bought a bag of mixed pallet jewels from one of the supply houses in the UK. I have been fortunate that when I needed one I have found one in this lot to fit. As with setting the jewels in their correct positions the first thing to check is that the escape wheel pivots are good, any excess movement in those pivot holes will have you altering the jewel positions for ever and never getting the watch to run. So far I have been luck and by moving them samll amounts at a time I have got a watch working. I would get a good book, claudius Sauniers Watchmakers Handbook would be a very good example. This is a real pain of a job and I dont envy you, this is something I still struggle with.
you can reduce jewels but it is not an easy procedure, it involves using wax chucks, diamond paste ect and it is very difficult and takes practice to get the surfaces flat and even. You would be better off keeping an eye out on e-bay for lots or trying http://www.ebay.co.uk/itm/Pallet-Jewels-Assortment-for-watches-spares-repairs-lot-/200817807609?pt=UK_Jewellery_Watches_WatchAccessories_SpareParts_SM&hash=item2ec1ac90f9#ht_1758wt_1018
Sorry I couldnt be more help.