Wayne & I drilled mine as well with a cordless drill & an ebay bit. 2 1.5" bulkheads & like 10 or 20 mins of work. We didnt build a dam or anything around the hole, I had a 5 gallon bucket full of water, & just kept a steady stream of fresh cold water on the bit, & hole.
DEFINITELY do it outside, & I would recommend gloves. The glass powder is not going to lay you open or anything, but it is VERY irritating to the skin. I would definitely also recommend taping the inside of the tank to prevent any excess chipping.... I had some minor chipping, but I smoothed it out with emery cloth.