... Is anyone aware of a similar tool...
Yeah, it's called a milling machine!

Yeah, okay, okay.
I did talk to Mel at C&S about this last year. They've done great work for me, but he was a little concerned about this.
It's a good shop, but he's not comfortable doing this operation. While I've pushed him a bit on a few things - the head milling in particular - if he's not comfy making the cuts, I don't want him doing it. There is no room for error in cutting anything else on this head. When a guy who refurbishes Duesenberg heads is uncomfortable with a proposed operation, I need to give considerable thought to moving forward.
What I liked about the Isky cutter is that it appears to only cut into the block. Is that only an appearance, or is that the case with this cutter? If that is the case, I doubt Mel would have an objection of duplicating the operation with a mill, but I don't see where it would be as effective as receiver grooves in the head as well as in the block.
I just need to make myself more aware of the operation before I can make a decision.
PJ, tell me more . . .
Midget,
The system I came up with while @ P** is as follows:
Hardened piano wire (guitar wire if you prefer . . . . . .

) is inserted in grooves cut in the block only. (An ARP head stud kit is required with this setup, which you are already using.) This
REQUIRES the use of a "Cooper's" copper composite head gasket, as it is the only gasket that I am aware of that has the correct dimensions. THIS GASKET MAY NO LONGER BE AVAILABLE, although I have one or two left in my bits. I don't think it is wise to modify your setup to use an obsolete part and hope to find NOS parts. (I still strongly advise against doing "stupid sh**".) This setup has the benefit of: No modifications to the head are necessary. (KISS principal . . . . . . . .)
I think Mini-Maven has found a replacement "Cooper's" gasket that works with this setup. I also have one of his blocks with the o-ringee dings installed. You can inspect it when you dip below the Cheddar Curtain . . . . . . . You may want to give him a call.
If this is unworkable for your situation, then I would recommend "the Full Monty", ie: solid copper head gasket combined with hardened O-rings in the block and receiver grooves in the head, as used in Top Fuel drag engines. I am concerned about machining more out of the head however. The head, IMHO, is "MAXED OUT", and there is some risk with further machining. I am of the opinion, however, that the MLS gaskets are at their limit, and they cannot be modified for the cooling changes I have recommended. The hot spot between cylinders #2 & #3 in your photo, is why I started with the block/head/gasket modifications years ago . . . . . . . Now that the "Grenade" makes "Big Boy Horsepower" (and the resultant cylinder heat . . . . ) you need to take some further steps to insure the head gasket doesn't fail . . . . . . . (Thanks BMC, for all "3" of those head studs per cylinder . . . . . .

)
Keep in mind that pushing the C/Ratio further up, (which will be necessary to wring more Shetland Ponies from this donk) is only going to stess the head gasket situation even more . . . . . . .
BTW, you can re-invent the wheel if you want, but I've already been down this road . . . . . . . the Camino de las Yungas.
http://www.youtube.com/watch?v=WXLxszv9eCMIt's the law of:
Diminishing returns and Increasing costs . . . . . . . I'm pretty sure that law was not postulated by Newton, Einstein or even Stephen Hawking . . . . . I'm pretty sure it was:
Murphy . . . . . . . 
Fordboy