the incredibly simple, cheap, sturdy friction heater.

[Foggy-Notion]

Better than dog bowls are stainless steel waste baskets
http://www.walmart.com/catalog/product.do?product_id=7978345#ShortReviewTitleBar

Those are actually pretty large I hear.
They fit right inside each other, no need for custom fab.

"space gap at bottom" can probably be left alone, I see no harm in it.
In fact some Brass B-Bs from a BB gun, in the bottom, might be the
perfect spacer setting your entire 1/8" inch all around, though might
be a little noisey?  Just one welded to exact center of outer shell
floor would make a quite pivot point for inner shell, or just used as a
gauge while you weld shaft, if going that route.

Or a round head screw through the bottom up into your spin shaft
would also act as a spacer, though you mighthave to grind it down
a little bit if it exceeds 1/8" inch.  With heat tolerant rubber washers
or some type of pipe glue, it should be leak proof.

There might be a lip at the bottom of these cans which could be dealt with
by adjusting your spacer size, might have to cut it to tabs & hammer 'em over,
but the 1/8" space on the sides is more important than space at the bottom.

Cavitation holes is an entirely different topic/method/ & invention,
It uses water, not oil, and requires much more power to operate as
it actually beats the water into a frensy, that takes muscle.

Put it this way, what would slide on ice easier,...
a skate blade?  or  a cheese grater?

What would slide on water/oil easier...
A surfboard, or a tennis racquet? 

Well than, which will be using less energy to operate?
These smooth slide operations can be turned with a tiny toy motor.
Even with wind-up clockwork guts, done right
A coil spring, gears, and a governor.

[ATT]

Better than dog bowls are stainless steel waste baskets
http://www.walmart.com/catalog/product.do?product_id=7978345#ShortReviewTitleBar

Good find...

"space gap at bottom" can probably be left alone,

Don't know what the 'taper' is from the description, but here's a couple of examples that show two different tapers. Either way, it doesn't look like you have any issues with 'not enough' space at the bottom:

You can 'dimple' the sides in places you deem appropriate, by drilling a dolly-block (just a piece of steel or aluminum) only as far as the bit-taper goes (don't get into the flutes) then take a bit of the same size as the one you drilled the block with, put it in a vise and grind the point down so it's a little flattened  (or you can use a bench-grinder, use vice-grips).

Try putting a scrap piece of sheet metal over the hole and tapping the rounded drill-bit on the metal to try a test-dimple, if it's too deep, keep taking down the bit, little by little, until the dimple mikes-out at 1/8".

Once the jig is set, you can dimple your inner rotator from the inside-out in as many places as you see fit and you'll have exactly the same stand-off all the way around without causing any balance issues from adding arbitrary weights, like screws. No leaks, glue or solder, either.

Try a 12" steel grade-stake (form-stake) for a dolly.

[Foggy-Notion]

I think the dimples could be a good idea for any whom have no access to a good work shop,
it is a quick fix spacer for ballance, though might make some noise.

The reason I think could work is because these do not have to go very fast,
the wider the diameter, the less revolutions it takes to still function.
These I'm told at this diameter can actually work at 70 RPM.

So if you get a motor controller or slower motor, the dimples shouldn't
create a mess, however, they will created some turbulance in the space
other than intended by design, and I don't know what effect that will have.
if any.

[ATT]

I think the dimples could be a good idea for any whom have no access to a good work shop,
it is a quick fix spacer for ballance, though might make some noise...however, they will created some turbulance in the space other than intended by design, and I don't know what effect that will have.

Being immersed in lubricant, there might not be too much additional friction or noise, but it will add a contact area to the outer drum, might be good enough for some test-runs, certainly nothing permanent.

The main advantage is it insures that the gap is exact and the inner drum is centered, something that might not be easy to accomplish with a shaft alone on material this light.

No way to know how 'round' these items are, either, they are just 'wastebaskets', after all.

[jadaro2600]

I would also like to mention that there are different grades of motor oil: each with it's own viscosity rating, perhaps one would work better than another.  Perhaps even used motor oil?

Mineral oil infused with fine wood ash may also be useful.