Ok, I've done 2 bayou classic kettles and a number of kegs. The BC kettles are kind of thin so I started with a 1/8" bit to start the hole then went to 1/4" before I used the step bit. I put the hole underneath the handles (Think about that as you are carrying a full, hot pot, "Where's the valve?"). BCs have a weld line up one side, it was also under the handle so drill on the other side so you don't try to put the hole through the weld. With steel that thin, you don't need too much pressure, but DO put your drill on the slowest setting.
+1 on the WD-40, spray the step bit liberally so the oil will run down the bit to where you are cutting, don't spray the pot (lay the pot securely on it's side, best also to have someone holding it too) and re-spray whenever you increase a step. Stop at 3/4" and see if the valve/nipple fits, then little by little until the nipple JUST goes through. You can then use the step bit from the inside, VERY lightly, from the inside to deburr the hole.
Dawn IS the best for removing the cutting oil.