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Sorry but your wrong R&P is the perfect choice in this application. Just about every industrial Stone cutting machine uses Helical R&P.
Your also Wrong about the Resolution and Micro steps because...

Well kind of but your way is a bit mixed up because the (+) Limit is NC but the (-) limit along with Home are NO so doesn't have the safety on the (-) limit side if wire breaks.!

If you used all...

I found a few of these drivers for sale but no technical details with a quick Google. Like Clive, I would suspect driver overheating, assuming that obvious things like physical jamming have been...

It looks to me is that the Z is stalling. It could be that a driver is heating up and shutting down.
What drivers are you using and what is the voltage of your PS. Can you give more info and pic...

I've just been investigating a diferent route a dedicated usb to parallel port adapter designed for use with Cnc machines the UC100 at a little under £100 not the cheapes but can easily move from...

These are uk makers that might supply your needs;
http://stoneycnc.co.uk/
http://www.exelcnc.com/

I just tried Ctrl +9 45 left, Ctrl +0 45 right in VCarve, it rotates the vectors but not the material (workpiece stock)

Then just change your ports and pins settings (and slave settings), so that you have two motors on your Y axis, and one on the X.

That's what I'd read.... just considering offering birch ply too, and acrylic ... and ... :)