Bite the bullet and buy a power venter or a power vented water heater. Carbon monoxide is a silent KILLER !
There is no guessing allowed, you may kill yourself if you like but it's inexcusable to have others in your home.
If you like the shop and labor rate and the kid then think about buying him a set of high jack stands with the understanding that he can pay you back . Flowers for a funeral are around $65 -$150 think about it. I've started giving some of my tools to guys that would appreciate them.
gravel will hold water . any fill needs to be compacted till you run out of fuel twice ! I would as others said pour a taller footer in concrete or build up with block. You can fill in with modified later and compact.
I would form the opening with corrugated decking and pour on top of it.
http://www.fsindustries.com/more_info/corrugated_steel_decking/corrugated_steel_decking.shtml
1/16" or 1/8" abrasive cut off wheel in your angle grinder will do just about any shaft. I wouldn't think you'd have any worries using bronze with carbon steel.