(j45)Jason,
The ideal is to have the boring bar located on dead center (in the axis, usually the horizontal one, of the cross-slide). If you are off-center in any way, you (almost always -- as the exception proves the rule) want to be (slightly) above center. A few thou is typically OK, but you will be moving the sine of your error rather than the full dial distance as you adjust your boring bar's position.
A thin piece of (relatively) hard and straight material (such as a 6 inch scale or piece of moderately thick shim stock) trapped between the cutter and an accurately centered round part will indicate the mismatch angle. Be careful doing this with carbide toolbits as it is easy to break off a corner.
My solution (which needs to be rebuilt as my grandsons were "helping" me around the shop a month ago) is to mount an indicator support above the headstock of my lathe. The horizontal arm (indicated to my gage bar within a "tenth") allows me to do all sorts of things. I will try to post pictures when I do the rebuild, but the basis is that I have a jack-screw collar that elevates my horizontal arm (then locked in place with a clamp-screw) such that a dedicated travel indicator is zero dead on the horizontal centerline of the spindle (I use a large flat "point" on that indicator). Setting tools to dead center is now trivial as I can drop the indicator on it. Similarly, I can check centering of work with great ease -- the indicator will read the radius of the part. This is exceptionally useful when mounting parts in a 4-jaw chuck.
