Robin,
I do think you have the right idea on this, a small utility to sit between Autocad and Mach3 to post process the dxf makes much more sense than having to buy an expensive CAM package.

So the concept of tools on layers, how would that work for multiple tools?

I am not sure I could be of a great deal of help but I do programme in C for work (I am a electronics design engineer) but mainly on embedded devices, but if I can help in any way then I would be happy to do so.

John