In the event you need a time-sensitive answer, I'd guess that watchweasol did mean to use the stem that came with the replacement movement. Perhaps that is because it will not have wear on it that the old one will have. It probably won't matter much though, providing the watch it was in was winding and setting well before replacing it. If you use the new stem you will likely have to cut the stem a touch and fit the crown.
"Set" position means with the stem pulled out in the position to set the hands.
I would like to try my hand at doing some different types of case finishes (circular brushing, radial lines of sunburst finishes etc.), and I,ve seen these finishes done on small lathes with the 3 jaw and the results looked quite good. Would the extra steps in setting up the 4 jaw be evident in the results that I would get?