Ok well sounds to me like this machine always had some issues because you shouldn't need to be Flashing anything, leave that to Old buggers Like Clive S. .

Homing is a simple procedure and mostly involves watching for a Input signal from the Home switch so shouldn't need any software flashes or updates as it's mostly electro mechanical.!!
So if your having to re-install software this indicates it's PC related or the Bespoke Hardware/software used. The switch can't cause the Software to need flashing. The switch will just work or it won't, possible chance of intermitant working but still all the same it won't affect Software.
The Bespoke boxford Hardware on the other hand if faulty could affect software and also Ignore the switch so I'd be suspicous of this more than the switch.!

The spindle getting so hot you can't touch the collet suggests to me that it's possible on it's way out.!! . . . Could be Fan is broken or it's so bunged up with crude it's not cooling correctly but that would be obvious so doubt it.(but check) More likely it's worn bearings and friction or possibley electrical.!
If it's fixed speed then cutting at lower feed rate wouldn't make a huge difference to the heat.

The machine losing it's way can be caused by many things. Heat is one of them..? . . . If the heat is so much then it could be causing mechanical parts to bind but not so much it stalls the machine but just enough to cause lost steps and over time lost position.
I very much doubt the spindle is causing so much heat it directly transfers into the steppers so it won't be that.!. . Chances are this is a mixture of several things working together.?

First with all the Flashing going off I suspect some settings have been lost and the drives are not set correctly for the motors. Or the Hardware is set wrong on it's switches. This will cause the Motors to get Very hot if current settings are wrong.

The Heat from the spindle is building up inside the enclosure transfering to mechanical parts. This could be causing some excess mechanical binding and friction.
The frame it's self will also heat up and this houses the electronics so excess heat could be affecting electrical Hardware. Excess heat in the cabinet will also affect the steppers badly if their current is set wrong.

So I think you have a machine that is over heating.!! . . . BUT what is causing the Heat could be a mixture of few things.